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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Maxim Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LETTERHEAD]
January 10, 1997
Dear Stockholder:
On behalf of the Board of Directors and management of Maxim
Pharmaceuticals, Inc., I invite you to our Annual Meeting to be held on Monday,
February 10, 1997, 10:00 a.m. EST at The American Stock Exchange, Board of
Governors Room, 13th Floor, 86 Trinity Place, New York, New York. This will be
our first Annual Meeting since we became a public company in July 1996.
At the meeting we will discuss the upcoming opportunities and plans for
your company. We hope it will be possible for you to attend in person.
It is important to us that your shares be represented at the meeting
whether or not you plan to attend. You can assure that your shares are voted at
the meeting in accordance with your preferences by properly completing, signing
and returning your proxy card in the enclosed envelope.
Sincerely,
/s/ Larry G. Stambaugh
--------------------------
Larry G. Stambaugh
Chairman of the Board
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[LETTERHEAD]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 10, 1997
To the Stockholders of Maxim Pharmaceuticals, Inc.:
The Annual Meeting of the Stockholders of Maxim Pharmaceuticals, Inc. will
be held Monday, February 10, 1997, 10:00 a.m. EST at The American Stock
Exchange, Board of Governors Room, 13th Floor, 86 Trinity Place, New York, New
York, for the following purposes as are more fully described in the accompanying
Proxy Statement:
1. To elect two Directors to the Board of Directors to hold office for a
three-year term or until their successors are elected and qualified.
The following persons are nominees for election to the Board of
Directors by holders of the Common Stock: Mr. G. Steven Burrill and
F. Duwaine Townsen;
2. To consider and act upon a proposal to approve an amendment to the
Company's 1993 Long-Term Incentive Plan (the "Incentive Plan") to,
among other things, increase the aggregate number of shares authorized
for issuance under the Incentive Plan from a total of 800,000 shares
to 1,000,000 shares.
3. To consider and act upon a proposal to ratify the initial selection of
KPMG Peat Marwick LLP as the Company's independent public accountants
for the fiscal year ending September 30, 1997; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on January 3, 1997, are
entitled to vote at the meeting or any adjournment thereof.
To assure that your shares will be voted at the meeting, you are requested
to sign the enclosed proxy card and return it promptly in the enclosed,
postage-paid, addressed envelope. No additional postage is required if mailed
in the United States. If you attend the meeting, you may revoke your proxy and
vote in person on all matters submitted at the meeting even though you have
previously mailed your proxy card.
By order of the Board of Directors,
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/s/ Dale A. Sander
------------------------
Dale A. Sander
Secretary
San Diego, California
January 10, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. YOUR VOTE
IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE EXECUTE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
<PAGE>
[LETTERHEAD]
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Maxim Pharmaceuticals, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on February 10, 1997, at
10:00 a.m., EST (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at The American Stock Exchange,
Board of Governors Room, 86 Trinity Place, New York, New York. The Company
intends to mail this proxy statement and accompanying proxy card on or about
January 10, 1997 to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, facsimile,
telegram or personal solicitation by directors, officers or other regular
employees of the Company. No additional compensation will be paid to directors,
officers or other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
January 3, 1997 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on January 3, 1997, the Company had outstanding and
entitled to vote 6,671,237 shares of Common Stock. Each holder of record of
Common Stock on such date will be entitled to one vote for each share held on
all matters to be voted upon at the Annual Meeting. All votes will be tabulated
by the inspector of election appointed for the meeting, who will separately
tabulate affirmative and negative votes, abstentions and broker non-votes.
Abstentions will be counted towards the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether a matter has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office,
3099 Science Park Road, Suite. 150, San Diego, CA 92121, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1998 Annual Meeting of stockholders must be received by the Company
not later than December 13, 1997 nor earlier than November 13, 1997 in order to
be included in the proxy statement and proxy relating to that Annual Meeting.
Stockholders are also advised to review the Company's Bylaws, which contain
additional requirements with respect to advance notice of stockholder proposals
and director nominations.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and Bylaws provide that the
Board of Directors shall be divided into three classes, each class consisting of
one or two directors, with each class having a three-year term. Vacancies on
the Board may be filled only by persons elected by a majority of the remaining
directors. A director elected by the Board to fill a vacancy (including a
vacancy created by an increase in the Board of Directors) shall serve for the
remainder of the full term of the class of directors in which the vacancy
occurred and until such director's successor is elected and qualified.
The Board of Directors is presently composed of five members. There are
two directors in the class whose term of office expires in 1997. Each of the
nominees for election to this class is currently a director of the Company who
was previously elected by the stockholders. If elected at the Annual Meeting,
each of the nominees would serve until the 2000 annual meeting and until his
successor is elected and has qualified, or until such director's earlier death,
resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING
G. STEVEN BURRILL: Mr. Burrill has served as a director of Maxim since 1996. He
founded and has served as Chief Executive Officer of Burrill & Company, a
private merchant bank, since January 1, 1997, and its predecessor firm, Burrill
& Craves, since 1994. Prior to that, Mr. Burrill served for 28 years with Ernst
& Young LLP as a partner and as chairman of the firm's Manufacturing/High
Technology Industry Services Group. Mr. Burrill is also a director of Genitope
Corporation, Hambro Health International, NuGene Technologies and Promega
Corporation.
F. DUWAINE TOWNSEN: Mr. Townsen has served as a director of Maxim since 1993.
Mr. Townsen has served as a Managing Partner of Ventana Growth Funds, a group of
five venture capital funds, since 1983. Prior to that, Mr. Townsen served as
Chairman of the Board of Directors and Chief Executive Officer of Kay
Laboratories, Inc., a manufacturer of medical products. Mr. Townsen received a
B.S. in Business Administration and Accounting from San Diego State University
and is a certified public accountant. Mr. Townsen is also a director of Cymer
Laser Technologies.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
PER-OLOF MARTENSSON: Mr. Martensson has served as a director of Maxim from
1993 to 1995 and again beginning in 1996. Since 1990, Mr. Martensson has owned
and operated POM Advisory Services AB, an independent consulting firm. Since
1991, Mr. Martensson has also served as President and Chief Executive Officer of
Karo Bio AB, a biopharmaceutical company. From 1992 to 1995, Mr. Martensson
served as Chairman of Skandigen AB, a diversified investment company. From 1987
to 1990, Mr. Martensson served as President of Pharmacia LEO Therapeutics AB,
and as Executive Vice President of Pharmacia AB, both biopharmaceutical
companies. From 1985 to 1990, Mr. Martensson served as President and Chief
Executive Officer of AB LEO, a biopharmaceutical company. Mr. Martensson is also
a director of Gambro AB. Mr. Martensson received an M.S. in Pharmacy from The
Royal Institute of Pharmaceutical Sciences (Kungliga Farmacevtiska Institutet)
in Stockholm, Sweden.
<PAGE>
LARRY G. STAMBAUGH: Mr. Stambaugh has served as the Company's Chairman of
the Board of Directors, President and Chief Executive Officer since 1993. From
1989 to 1992, Mr. Stambaugh served in a number of positions at ABC Laboratories,
Inc., an international contract science research laboratory, including Chairman
of the Board of Directors, President and Chief Executive Officer. From 1983 to
1989, Mr. Stambaugh served as Executive Vice President and Chief Financial
Officer of CNB Financial Corporation, a multi-bank holding company.
Mr. Stambaugh received a B.A. in business administration from Washburn
University and is a certified public accountant.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
COLIN B. BIER, PH.D.: Dr. Bier has served as a director of Maxim since
1994. Dr. Bier has served as Managing Director of ABA BioResearch, an
independent bioregulatory affairs consulting firm, since 1988. Dr. Bier is also
a director of Boston Life Sciences, Inc., IAF BioVac, NYMOX Pharmaceuticals
Corporation and Sparta Pharmaceuticals.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended September 30, 1996, the Board of Directors
held thirteen meetings. The Board has an Audit Committee, a Compensation
Committee and a Nominating Committee.
The Audit Committee meets at least annually with the Company's independent
auditors to, among other things, review the results of the annual audit and
discuss the financial statements, recommend to the Board the independent
auditors to be retained and receive and consider the auditors' comments as to
controls, adequacy of staff and management performance and procedures in
connection with audit and financial controls. The Audit Committee , met one
time during the fiscal year ended September 30, 1996. The Audit Committee is
currently composed of Messrs. Townsen, Burrill and Martensson and Dr. Bier.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, administers and awards stock options to employees and
consultants under the Company's equity incentive plans and otherwise determines
compensation levels and performs such other functions regarding compensation as
the Board may delegate. The Compensation Committee met three times during the
fiscal year ended September, 1996. The Compensation Committee is currently
composed of Messrs. Burrill, Martensson and Dr. Bier.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors and committees
thereof and nominates specific individuals to be elected as officers of the
Company by the Board of Directors. The Nominating Committee, which was formed
in November 1996, is composed of Messrs. Burrill, Martensson and Dr. Bier.
During the fiscal year ended September 30, 1996, each Board member attended
75% or more of the aggregate of the meetings of the Board (and of the committees
on which he served) held during the period for which he was a director or
committee member, respectively.
PROPOSAL 2
APPROVAL OF 1993 LONG-TERM INCENTIVE PLAN, AS AMENDED
The Company's 1993 Long-Term Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors in 1993. The Incentive Plan was amended and
restated by the Board of Directors in March 1996 and subsequently approved by
the Company's stockholders in April 1996. A total of 800,000 shares of Common
Stock have been reserved for issuance under the Incentive Plan. As of January
10, 1997, 400 shares had been issued upon the exercise of stock awards granted
under the Incentive Plan, 641,500 shares were subject to outstanding stock
options and 158,100 shares remained available for future grants.
In December 1996, the Board approved an amendment to the Incentive Plan,
subject to stockholder approval, to increase the aggregate number of shares
authorized for issuance under the Incentive Plan from a total of 800,000 shares
to 1,000,000 shares. The Board adopted this amendment to ensure that the
Company can continue
<PAGE>
to grant stock options, awards, bonuses or rights to employees of and
consultants to the Company at levels determined appropriate by the Board and the
Compensation Committee.
In December 1996, the Board amended and restated the Incentive Plan,
subject to stockholder approval, to update it generally for tax and securities
provisions now applicable to the Company, including adding a limitation
providing that no person may be granted options and stock appreciation rights
under the Incentive Plan during a calendar year-period to purchase in excess of
200,000 shares of Common Stock. Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), denies a deduction to any publicly held
corporation for certain compensation paid to specified employees in a taxable
year to the extent that the compensation exceeds $1,000,000 for any covered
employee. In light of the Section 162(m) requirements, the Incentive Plan, as
amended and restated, limits the number of options and stock appreciation rights
that may be granted to any person under the Incentive Plan, as well as provides
that, in the Board's discretion and to the extent practicable, directors who
grant options to covered employees generally will be "outside directors" as
defined in Section 162(m). See "Federal Income Tax Information" below for a
discussion of the application of Section 162(m).
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to approve the Incentive Plan, as amended.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
The essential features of the Incentive Plan are outlined below.
GENERAL
The Incentive Plan provides for grants of incentive stock options to
employees (including officers and directors) and nonstatutory stock options,
restricted stock purchase awards, stock bonuses and stock appreciation rights to
employees (including officers and directors) of and consultants to the Company.
To date, only incentive stock options and nonstatutory stock options have been
awarded under the Incentive Plan. Incentive stock options granted under the
Incentive Plan are intended to qualify as "incentive stock options" within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Nonstatutory stock options granted under the Incentive Plan are
intended not to qualify as incentive stock options under the Code. See "Federal
Income Tax Information" for a discussion of the tax treatment of the various
awards available under the Incentive Plan.
PURPOSE
The Incentive Plan was adopted to provide a means by which selected
officers and employees of and consultants to the Company and its affiliates
could be given an opportunity to purchase stock in the Company, to assist in
retaining the services of employees holding key positions, to secure and retain
the services of persons capable of filling such positions and to provide
incentives for such persons to exert maximum efforts for the success of the
Company. All of the Company's approximately 11 employees are currently eligible
to participate in the Incentive Plan.
ADMINISTRATION
With respect to employee-officers, directors, employee-directors and
consultant-directors, the Incentive Plan is administered by the Compensation
Committee. The Chief Executive Officer administers the Incentive Plan with
respect to all other employees and consultants. As used herein with respect to
the Incentive Plan, the "Administrator" refers to the Compensation Committee and
the Chief Executive Officer.
ELIGIBILITY
Incentive stock options may be granted under the Incentive Plan only to
employees (including directors and officers) of the Company and its affiliates.
Employees (including directors and officers), directors and consultants are
eligible to receive awards other than incentive stock options under the
Incentive Plan.
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No incentive stock option may be granted under the Incentive Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option's exercise prices is at least
110% of the fair market value of the stock subject to the option on the date of
grant, and the term of the options does not exceed five years from the date of
grant. For incentive stock options granted under the Incentive Plan, the
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which such options are exercisable for the first
time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000.
STOCK SUBJECT TO THE INCENTIVE PLAN
If awards granted under the Incentive Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such awards
again becomes available for issuance under the Incentive Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Incentive Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the Incentive Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair market
value. The exercise price of nonstatutory options under the Incentive Plan is
determined by the appropriate Administrator. However, if options are granted
with exercise prices below fair market value, deductions for compensation
attributable to the exercise of such options could be limited by Section 162(m)
of the Code. See "Federal Income Tax Information." At December 23, 1996, the
closing price of the Company's Common Stock as reported on the American Stock
Exchange was $7.875 per share.
In the event of a decline in the value of the Company's Common stock, the
Administrator has the authority to offer optionees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Code Section 162(m), an option
repriced under the Incentive Plan is deemed to be canceled and a new option
granted. Both the option deemed to be canceled and the new option deemed to be
granted will be counted against the 200,000 share limitation under the Incentive
Plan.
The exercise price of options granted under the Incentive Plan must be paid
either; (a) in cash at the time the option is exercised; or (b) at the
discretion of the Administrator, (i) by delivery of other Common Stock of the
Company or (ii) pursuant to a deferred payment arrangement.
OPTION EXERCISE. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding incentive stock options and nonstatutory stock
options typically vest at a rate of 20 or 25% every year following the date of
grant, so that the shares would be fully vested on the fifth or fourth
anniversary of the date of the grant, assuming the optionee's continued
employment or services as a consultant or director. Shares covered by options
granted in the future under the Incentive Plan may be subject to different
vesting terms. To the extent provided by the terms of an option, an optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned stock of the Company or by a combination of these
means.
TERM. The maximum term of options under the Incentive Plan is ten years,
except that in certain cases (see "Eligibility") the maximum term is five years.
The Administrator has the authority to determine the terms by which any option
granted under the Incentive Plan terminates. Incentive stock options which are
currently outstanding terminate upon the earlier of (a) the termination of the
optionee's employment with cause; (b) one year after (i) the termination of
optionee's employment without cause, (ii) any significant reduction or adverse
change in the nature or scope of the optionee's authority, duties, status,
position or compensation which would be a basis for optionee to terminate any
applicable employment agreement, (iii) termination following a change of control
of the Company or
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(iv) optionee's retirement, death or disability; or (c) seven years after the
date of grant. Nonstatutory stock options which are currently outstanding
terminate seven years after the date of grant.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
The Administrator may grant stock bonus and restricted stock awards to
employees, consultants and consultant-directors and determines the terms and
conditions of such grants, including the number of shares awarded. Stock bonus
awards must be granted based on the achievement of performance or other goals as
determined by the Administrator. Restricted stock awards must include certain
restrictions including at least one term or condition constituting a
"substantial risk of forfeiture" as defined by Section 83(c) of the Code. In
addition, restricted stock awards may, but need not, be subject to a requirement
that in the event of the grantee's termination of employment or other service
with the Company prior to the lapse of any applicable restrictions, all shares
of restricted stock shall be forfeited by the grantee to the Company without
payment of consideration.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights ("SARs") to the Company's
employees, consultants and consultant-directors.
SARs may be granted (a) in connection with the grant of an option (b) by
amendment of an outstanding nonstatutory option or (iii) independently of any
option (SARs described in (a) and (b) shall sometimes be referred to as "Related
SARs").
SARs entitle the grantee to receive a distribution in an amount not to
exceed the number of shares of Common Stock subject to the portion of the SAR
exercised multiplied by an amount equal to the market price of a share of Common
Stock on the date of exercise of the SAR less the market price of a share of
Common Stock on the date of grant of the SAR or, in the case of a Related SAR,
the exercise price of the related option. Such distributions are payable in
cash or shares of Common Stock, or a combination thereof.
The period during which SARs may be exercised shall be determined by the
appropriate Administrator; provided, however, a SAR (a) may not be exercised
until six months after the date of grant; (b) will expire no later than the
earlier of ten years from the date of grant or, in the case of a Related SAR,
the expiration of the related option; (c) may be exercised only when the market
price of a share of Common Stock exceeds either (i) the market price of a share
of Common Stock on the date of grant or (ii) in the case of a Related SAR, the
exercise price of the related option; and (d) in the case of a Related SAR tied
to an incentive stock option, may be exercised only when and to the extent such
option is exercisable. The exercise, in whole or in part, of a Related SAR
shall cause the number of shares of Common Stock subject to the related option
to be reduced by the same number of shares.
PERFORMANCE UNITS
Under the Incentive Plan, the Administrator may grant performance units to
the Company's employees, consultants and consultant-directors, which entitles a
grantee to receive a distribution based on the degree to which performance
standards established by the Administrator have been satisfied by the individual
grantee or the Company (the "Performance Unit"). Such distributions are payable
in cash or shares of Common Stock, or a combination thereof.
Performance Units may be granted (a) in connection with the grant of an
option (b) by amendment of an outstanding nonstatutory option or
(iii) independently of any option (Performance Units described in (a) and (b)
shall sometimes be referred to as "Related Performance Units").
The period during which Performance Units may be exercised shall be
determined by the appropriate Administrator; provided, however, a Performance
Unit (a) may not be exercised until six months after the date of grant if Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") so dictates, and (b) will expire no later than the earlier of
ten years from the date of grant or, in the case of a Related Performance Unit,
the expiration of the related option.
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ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Incentive Plan or
subject to any award granted under the Incentive Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Incentive Plan and awards outstanding thereunder will be appropriately adjusted
as to the class and the maximum number of shares subject to such plan and the
class, number of shares and price per share of stock subject to such outstanding
awards.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Incentive Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Incentive Plan will terminate on September 30, 2003.
The Board may also amend the Incentive Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after its adoption by
the Board if the amendment would: (a) modify the requirements as to eligibility
for participation (to the extent such modification requires stockholder approval
in order for the Incentive Plan to satisfy Section 422 of the Code, if
applicable, or Rule 16b-3; (b) increase materially the number of shares reserved
under the Incentive Plan; (c) modify materially the requirements as to
eligibility for participation under the Incentive Plan; (d) change the class of
persons eligible to receive incentive stock options; (e) increase materially the
benefits accruing to participants under the Incentive Plan or (f) change any
other provision of the Plan in any other way if such modification requires
stockholder approval in order to comply with Rule 16b-3 or satisfy the
requirements of Section 422 of the Code.
RESTRICTIONS ON TRANSFER
Under the Incentive Plan, options, SARs, Performance Units and stock
bonuses may not be transferred by the optionee or grantee except by will or by
the laws of descent and distribution and, in the case of incentive stock
options, pursuant to a "qualified domestic relations order" as defined in
Section 414(p) of the Code. An option, a SAR or a Performance Unit may be
exercised during the optionee's lifetime only by the optionee or, in the event
of a legal disability, by the optionee's legal representative.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Incentive Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss, which will be long-term or short-term depending on
whether the stock was held for more than one year. Capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum
long-term capital gains rate for federal income tax purposes is currently 28%
while the maximum ordinary income rate is effectively 39.6% at the present time.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
<PAGE>
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Incentive Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a reporting obligation, the Company will generally be entitled
to a business expense deduction equal to the taxable ordinary income realized by
the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option. Such gain or loss will be long or
short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Rule 16b of the Exchange Act.
RESTRICTED STOCK AND STOCK BONUSES. Restricted stock and stock bonuses
granted under the Incentive Plan generally have the following federal income tax
consequences: Upon acquisition of stock under a restricted stock or stock bonus
award, the recipient normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such gain or loss will be long or short-term depending on whether the
stock was held for more than one year from the date ordinary income was
measured. Slightly different rules may apply to persons who acquire stock
subject to forfeiture.
STOCK APPRECIATION RIGHTS AND PERFORMANCE UNITS. No taxable income is
realized upon the receipt of a stock appreciation right or performance unit, but
upon exercise of the stock appreciation right or performance unit the fair
market value of the shares (or cash in lieu of shares) received must be treated
as compensation taxable as ordinary income to the recipient in the year of such
exercise. Generally, with respect to employees, the Company is required to
withhold from the payment made on exercise of the stock appreciation right or
performance unit, or from regular wages or supplemental wage payments, an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, Section 162(m) of the Code and the satisfaction of a reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income recognized by the recipient.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m) which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to awards under the Incentive Plan, when combined with
all other types of compensation received by a covered employee from the Company,
may cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with applicable Treasury regulations issued under Section 162(m) of
the Code, compensation attributable to stock options and stock appreciation
rights will qualify as performance-based compensation, provided that: (i) the
stock award plan contains a per-employee limitation on the number of shares for
which stock options and stock appreciation rights may be granted during a
specified period; (ii) the per-employee
<PAGE>
limitation is approved by the stockholders; (iii) the award is granted by a
compensation committee comprised solely of "outside directors"; and (iv) the
exercise price of the award is no less than the fair market value of the stock
on the date of grant. Compensation attributable to restricted stock will
qualify as performance-based compensation, provided that: (i) the award is
granted by a compensation committee comprised solely of "outside directors";
and (ii) the purchase price of the award is no less than the fair market value
of the stock on the date of grant. Stock bonuses qualify as performance-based
compensation under these Treasury regulations only if: (i) the award is granted
by a compensation committee comprised solely of "outside directors;" (ii) the
award is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied; and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the amount) payable upon attainment of the
performance goal).
OPTIONS GRANTED
At January 10, 1997, options to purchase an aggregate of 656,500 shares at
exercise prices ranging from $3.75 to $10.00 per share of the Company's Common
Stock were outstanding under the Incentive Plan, and 143,500 shares (plus any
shares that might in the future be returned to the plans as a result of
cancellations or expiration of options) remained available for future grant
under the Incentive Plan, excluding the increase of 200,000 shares for which
stockholder approval is sought.
The following table presents certain information with respect to options
granted under the Incentive Plan, subject to the approval of the amendment of
the Incentive Plan by the stockholders, to (i) each of the executive officers
named in the Summary Compensation Table, (ii) all executive officers as a group,
and (iii) all non-executive officer employees as a group.
NEW PLAN BENEFITS
1993 LONG-TERM INCENTIVE PLAN
-------------------------------------
NUMBER OF SHARES
SUBJECT TO OPTIONS
NAME AND POSITION DOLLAR VALUE(1) GRANTED
- ----------------- ------------------ ------------------
Larry G. Stambaugh . . . . . . . . . . . . $ 1,624,997 316,666
President and
Chief Executive Officer
Kurt R. Gehlsen . . . . . . . . . . . . . $ 340,000 76,667
Vice President, Development and
Chief Financial Officer
Dale A. Sander . . . . . . . . . . . . . . $ 270,000 30,000
Vice President, Finance
Chief Financial Officer and Secretary
Kirk D. Petersen (2) . . . . . . . . . . . $ - -
Former Chief Financial Officer
Dannie H. King, Ph.D. (2). . . . . . . . . $ - -
Former Executive Vice President and Chief
Technical Officer
All Executive Officers as a Group . . . . $ 2,234,997 423,333
All Non-Executive Officer . . . . . . . . $ 250,001 43,167
Employees as a Group
All Non-Employee Directors as a Group . . $ 468,750 125,000
_________________________
(1) Exercise price multiplied by the number of shares underlying the option(s).
(2) Mr. Petersen and Dr. King's employment with the Company terminated in March
1996 and their options terminated on September 30, 1996.
<PAGE>
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending September 30, 1997 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. KPMG Peat Marwick
LLP has audited the Company's financial statements since 1994. In the event of
a negative vote on such ratification, the Board of Directors will reconsider its
action. Representatives of KPMG Peat Marwick LLP are expected to be present at
the Annual Meeting, will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions. Even if the
selection is ratified, the Audit Committee and the Board at its discretion may
direct the appointment of a different independent accounting firm at any time
during the year if they determine that such a change would be in the best
interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares represented
and entitled to vote at the meeting will be required to ratify the selection of
KPMG Peat Marwick LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL 3
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of January 3, 1997 by: (i) each nominee for
director; (ii) each director; (iii) each executive officer listed in the table
entitled Summary of Compensation employed by the Company in that capacity on
January 3, 1997; (iv) all executive officers and directors of the Company as a
group; and (v) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
BENEFICIAL OWNERSHIP
----------------------------------
PERCENT
BENEFICIAL OWNER(1) NUMBER OF SHARES OF TOTAL(2)
------------------- ---------------- -----------
Atrix-Ventana Investment & Company L.P.(3) . . . 875,473 13.1%
1310 Greene Avenue, Suite 660
Montreal, Quebec
H3Z 2B2 Canada
Ventana Growth Funds(4) . . . . . . . . . . . . 672,588 10.1%
8880 Rio San Diego Drive, Suite 500
San Diego, CA 92108
SE Banken Lakemedelsfonder(5) . . . . . . . . . 556,666 8.3%
Kastanjevagen 4
S-13246 Saltsjo-300, Sweden
Larry G. Stambaugh(6) . . . . . . . . . . . . . 176,601 2.6%
3099 Science Park Road, Suite 150
San Diego, CA 92121
Kurt R. Gehlsen, Ph.D.(7) . . . . . . . . . . . 13,733 *
3099 Science Park Road, Suite 150
San Diego, CA 92121
Dale A. Sander (8) . . . . . . . . . . . . . . 6,000 *
3099 Science Park Road, Suite 150
San Diego, CA 92121
Colin B. Bier, Ph.D.(9) . . . . . . . . . . . . 45,000 *
ABA BioResearch Inc.
677 Dr. Frederik Philips
Saint-Laurent, Quebec
H4M 2W4 Canada
G. Steven Burrill(10) . . . . . . . . . . . . . 31,321 *
Burrill & Company
One Bush Street, Suite 1100
San Francisco, CA 94104
Per-Olof Martensson(11) . . . . . . . . . . . . 40,333 *
POM Advisory Services AB
Kompass Vagen 18
Box 6
S-26041 Nyhamnslage
Sweden
F. Duwaine Townsen(12) . . . . . . . . . . . . . 730,355 10.8%
8880 Rio San Diego Drive, Suite 500
San Diego, CA 92108
All Directors and Officers as a Group
(7 persons)(13) 1,043,345 15.5%
<PAGE>
__________
* Less than 1%
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Except as otherwise
indicated, the Company believes that the beneficial owners of the shares
listed above, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to
community property laws where applicable.
(2) Percentage of beneficial ownership is based on an aggregate of 6,671,237
shares of Common Stock outstanding as of January 3, 1997, adjusted as
required by rules promulgated by the SEC.
(3) Includes 10,673 shares subject to warrants issued to Atrix-Ventana
Investment & Company L.P. ("Atrix-Ventana") exercisable within 60 days of
January 3, 1996. Does not include 200,465 shares and 42,323 shares subject
to stock options and warrants exercisable within 60 days of January 3, 1996
held by directors and officers of the general partner of Atrix-Ventana and
by entities as to which such directors and officers have or share voting or
investment power. Atrix-Ventana Management, Inc., a Canadian corporation,
is the general partner of Atrix-Ventana Investment & Company L.P. The
following officers and directors of Atrix-Ventana Management, Inc. have
voting and investment power with respect to securities held by the
corporation: Mark S. Bercuvitz (President/Director), Richard Dubrovsky
(Director), Paul E. Lowenstein (Vice President/Director), Paul Harris
(Secretary/Director), Ronald Kay (Assistant Secretary), Marvin Rosenbloom
(Director) and Marc Gold (Director). The above natural persons disclaim
beneficial ownership of all shares held by the above entities except to the
extent of each person's pro-rata interest therein, if any.
(4) Includes (i) 464,733 shares and 16,666 shares subject to warrants
exercisable within 60 days of January 3, 1997 held by Ventana Growth Fund
II L.P. ("Ventana II"), (ii) 181,333 shares and 1,825 shares subject to
warrants exercisable within 60 days of January 3, 1996 held by Ventana
Growth Capital Fund V L.P. ("Ventana V"), (iii) 5,831 shares subject to
warrants exercisable within 60 days of January 3, 1996 held by Ventana
Partnership III L.P. ("Ventana III"), and (iv) 2,200 shares held by Ventana
Growth Fund, L.P. Shares held by Ventana II include 6,467 shares held for
Ventana Growth Fund, L.P. and 13,400 shares held for partners of such fund;
Ventana II disclaims beneficial ownership of such shares. Mr. Townsen
disclaims beneficial ownership of all shares held by such entities except
to the extent of his pecuniary interest therein, if any. Ventana Holdings,
L.P. is the general partner of Ventana Growth Fund, L.P. Ventana Partners
I, G.P. and Ventana Partners II, L.P. are the general partners of Ventana
Holdings, L.P. Ventana Partners I, G.P. is also the general partner of
Ventana Partners II, L.P. F. Duwaine Townsen and Thomas O. Gephart are the
general partners of Ventana Partners I, G.P. Ventana International, L.P. is
the general partner of Ventana Growth Fund II, L.P. Ventana Managers, G.P.
is the general partner of Ventana International, L.P. F. Duwaine Townsen
and Thomas O. Gephart are the general partners of Ventana Managers, G.P.
Ventana Japan, L.P. is the general partner of Ventana Partnership III, L.P.
Ventana Partners III, G.P. is the general partner of Ventana Japan, L.P. F.
Duwaine Townsen and Thomas O. Gephart are the general partners of Ventana
Partners III, G.P. Ventana Partners V, G.P. is the general partner of
Ventana Growth Capital Fund V, L.P. F. Duwaine Townsen and Thomas O.
Gephart are the general partners of Ventana Partners V, G.P. The above
natural persons disclaim beneficial ownership of all shares held by the
above entities except to the extent of each person's pro-rata interest
therein, if any.
(5) Includes 8,000 shares subject to warrants exercisable within 60 days of
January 3, 1997. SE Banken Lakemedelsfonder is a Swedish corporation, the
following officers and directors of which having voting and investment
power with respect to securities held by the corporation: Bengt A.
Hedenstrom (Managing Director/Director), Gunnar N. Carleson (Director),
Bengt Dennis (Director), Harry G.B. Faulkner (Director), Jan G.M. Heuman
(Director), Uno H.L. Ribohn (Director), Peter S.I. Sjostrand (Director) and
Leif A. Ostling (Director).
(6) Includes 1,500 shares held by members of the immediate family of Mr.
Stambaugh and 175,001 shares subject to stock options exercisable within 60
days of January 3, 1997.
(7) Includes 400 shares held by members of the immediate family of Dr. Gehlsen
and 13,333 shares subject to stock options exercisable within 60 days of
January 3, 1997.
(8) Includes 6,000 shares subject to stock options exercisable within 60 days
of January 3, 1997.
(9) Includes 45,000 shares subject to stock options exercisable within 60 days
of January 3, 1997.
(10) Includes 31,321 shares subject to warrants exercisable within 60 days of
January 3, 1997 held by Burrill & Company, Inc. Mr. Burrill is the Chief
Executive Officer and a principal of Burrill & Company, Inc. Mr. Burrill
disclaims beneficial ownership of all shares held by Burrill & Company,
Inc. except to the extent of his pecuniary interest therein.
(11) Includes 40,000 shares subject to stock options exercisable within 60 days
of January 3, 1997.
(12) Includes an aggregate of 648,266 shares and 24,323 shares subject to
warrants exercisable within 60 days of January 3, 1997 held by Ventana
Growth Fund, L.P., Ventana II, Ventana III, and Ventana V. See Note 4.
Mr. Townsen is a general partner of Ventana Growth Fund L.P., Ventana II,
Ventana III, and Ventana V. Mr. Townsen disclaims beneficial
<PAGE>
ownership of all shares held by such entities except to the extent of his
pecuniary interest therein, if any. Includes 8,933 shares and 83 shares
subject to warrants exercisable within 60 days of January 3, 1997 held
jointly by Mr. Townsen and his wife. Also includes 40,000 shares subject to
stock options exercisable within 60 days of January 3, 1997, and 8,750
shares subject to warrants exercisable within 60 days of January 3, 1997
held by Mr. Townsen.
(13) Includes 40,378 shares subject to warrants and 241,666 shares subject to
stock options exercisable within 60 days of January 3, 1997. See Notes
6 - 12.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater
than ten percent stockholders are required by Commission regulation to furnish
the Company with copies of all Section 16(a) forms they file. Mr. Stambaugh did
not file a Form 4 report covering four transactions within the time period
allowed but corrected the omission by reporting such transactions in his
year-end Form 5.
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with their attendance at Board and
Committee meetings. After the Annual Meeting, each non-employee director will
receive an annual fee of $4,000 and a per meeting fee of $1,000, if attended in
person, or $500, if attended by telephone. Each non-employee director will also
receive a fee of $250 per committee meeting attended and $500 per committee
meeting for serving as the committee's chairperson. In addition, each
non-employee director will receive an automatic stock option grant of 10,000
shares of Common Stock upon his election or reelection to the Board and 5,000
shares annually if he attends at least 75% of the meetings held during a fiscal
year. Non-employee directors are also eligible for reimbursement for their
expenses incurred in connection with attendance at Board meetings in accordance
with Company policy. Notwithstanding the foregoing, Mr. Burrill, if reelected
to the Board, will not receive the above described fees because of his firm's
consulting arrangement with the Company. See "Certain Transactions."
On May 2, 1996, in connection with their services as directors, the Company
granted Dr. Bier fully vested stock options to purchase 45,000 shares of Common
Stock and each of Messrs. Martensson and Townsen fully vested stock options to
purchase 40,000 shares of Common Stock at an exercise price of $3.75 per share.
Mr. Stambaugh was granted stock options on May 2, 1996 and November 11, 1996 in
connection with his services as President and Chief Executive Officer as
described in "Stock Option Grants and Exercises" below. In addition, entities
affiliated with certain of the directors have, from time to time, entered into
transactions with the Company. See "Certain Transactions."
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, their positions with the Company and
experience are set forth below.
Year in
which he
became an
Name Position(s) Age Officer
- ---- ----------- --- -------
Larry G. Stambaugh President and Chief 49 1993
Executive Officer
Kurt R. Gehlsen Vice President, Development 40 1996
and Chief Technical Officer
Dale A. Sander Vice President, Finance, 37 1996
Chief Financial Officer
and Secretary
The officers of the Company hold office at the discretion of the Board of
Directors of the Company. During Fiscal 1996, the officers of the Company
devoted substantially all of their business time to the affairs of the Company
for the period in which they were employed, and they intend to do so during
Fiscal 1997.
LARRY G. STAMBAUGH has served as the Company's Chairman of the Board of
Directors, President and Chief Executive Officer since 1993. From 1989 to 1992,
Mr. Stambaugh served in a number of positions at ABC Laboratories, Inc., an
international contract science research laboratory, including Chairman of the
Board of Directors, President and Chief Executive Officer. From 1983 to 1989,
Mr. Stambaugh served as Executive Vice President and Chief Financial Officer of
CNB Financial Corporation, a multi-bank holding company. Mr. Stambaugh received
a B.A. in business administration from Washburn University and is a certified
public accountant.
<PAGE>
KURT R. GEHLSEN, PH.D. joined the Company as Vice President, Development and
Chief Technical Officer in May 1996. From 1991 to 1995, Dr. Gehlsen served as
Chairman of the Board of Directors, President and Chief Executive Officer of
Trauma Products, Inc., a biomedical company. From 1989 to 1991, Dr. Gehlsen
served as Vice President, Chief Operating Officer and Director of Molecular and
Cellular Biology for the La Jolla Institute for Experimental Medicine. From
1989 to 1991, Dr. Gehlsen served as Senior Research Scientist and Director,
Division of Molecular and Cellular Biology, Pharmacia Experimental Medicine
Division of Pharmacia, Inc., a biopharmaceutical company. Dr. Gehlsen received
a B.S. in biology from the University of Arizona and a Ph.D. from the University
of Arizona College of Medicine.
DALE A. SANDER joined the Company in October 1996 as Vice President of Finance,
Chief Financial Officer and secretary. From December 1993 to October 1996, Mr.
Sander served as Chief Financial Officer of Xytronyx, Inc., a biotech company.
From April 1991 to December 1993, Mr. Sander served as Chief Financial Officer
of Tactyl Technologies, Inc., a medical device. Prior to 1991 he worked for
over nine years with Ernst & Young, an international professional service firm.
He is a Certified Public Accountant and has a Bachelor of Science Degree in
Accounting from San Diego State University.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ending September 30, 1996, 1995
and 1994, compensation awarded or paid to, or earned by the Company's Chief
Executive Officer, its other four most highly compensated executive officers at
September 30, 1996 and two former executive officer who departed from the
Company during fiscal year 1996 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------------------------------------------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING
PRINCIPAL POSITION (1) YEAR SALARY ($) BONUS ($) (2) ($) OPTIONS (#)
---------------------- ---- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Larry G. Stambaugh 1996 $ 180,000 $ 67,500 $ - 233,333
President and Chief Executive 1995 $ 180,000 $ 54,000 $ - 16,666
Officer 1994 $ 164,110 $ 35,000 $ - -
Kurt R. Gehlsen, Ph.D. (3) 1996 $ 53,308 $ - $ - 66,666
Vice President, Development 1995 $ - $ - $ - -
and Chief Technical Officer 1994 $ - $ - $ - -
Dale A. Sander (3) 1996 $ - $ - $ - -
Chief Financial Officer and 1995 $ - $ - $ - -
Secretary 1994 $ - $ - $ - -
Kirk D. Peterson (4) 1996 $ 55,385 $ - $ - -
Former Chief Financial Officer 1995 $ 120,000 $ - $ - -
and Secretary 1994 $ 94,131 $ 30,000 $ - 5,000
Dannie H. King, Ph.D. (4) 1996 $ 83,077 $ - $ - -
Former Executive Vice 1995 $ 180,000 $ - $ - -
President and Chief Technical 1994 $ 6,923 $ - $ - 10,000
Officer
</TABLE>
______________
(1) The principal position for each of the Named Executive Officers reflects
the offices and titles held by each of them for the fiscal year ended
September 30, 1996.
(2) Bonuses are reflected in the fiscal year earned.
(3) Dr. Gehlsen and Mr. Sander's employment commenced in May 1996 and October
1996, respectively.
(4) Mr. Petersen and Dr. King's employment with the Company terminated in March
1996.
<PAGE>
OPTION GRANTS DURING YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZED
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATE OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE PRICE OPTION TERM($) (2)
GRANTED EMPLOYEES IN PER SHARE EXPIRATION --------------------------
NAME (#) (1) FISCAL YEAR ($/SH) DATE 5% 10%
- ----------------------- ------- ----------- -------------- ---------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Stambaugh 233,333 77.6% $3.75 5/2/03 $602,454 $1,171,151
Kurt R. Gehlsen Ph.D. 66,666 22.2% $3.75 5/2/03 $172,131 $334,617
Dale A. Sander (3) - - - - - -
Kirk D. Petersen (4) - - - - - -
Dannie H. King, Ph.D.(4) - - - - - -
</TABLE>
____________
(1) Consists of stock options granted pursuant to the Plan. The maximum term of
each option granted is seven years from the date of grant. The exercise
price is equal to the market value of the stock on the grant date as
adjusted for subsequent stock splits.
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annually compounded stock price appreciation of 5% and 10% from the date
the option was granted over the full option term. These assumed annually
compounded rates of stock price appreciation are mandated by the rules of
the Commission and do not represent the Company's estimates or projection
of future Common Stock prices.
(3) Mr. Sander's employment commenced in October 1996.
(4) Mr. Petersen and Dr. King's employment with the Company terminated in March
1996.
The following table set forth certain information for the Named Executive
Officers with respect to the exercise of options to purchase Common Stock during
the fiscal year ended September 30, 1996 and the number and value of securities
underlying unexercised options held by the Named Executive Officers as of
September 30, 1996.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED
SEPTEMBER 30, 1996 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
SHARES COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE SEPTEMBER 30, 1996 SEPTEMBER 30, 1996($)
EXERCISE REALIZED ------------------ ---------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Stambaugh - - 116,667 116,667 $ 743,749 $ 743,749
Kurt R. Gehlsen Ph.D. - - 13,333 53,334 $ 85,000 $ 340,002
Dale A. Sander(2) - - - - $ - $ -
Kirk D. Petersen(3) - - - - $ - $ -
Dannie H. King, Ph.D.(3) 400 $1,050 - - $ - $ -
</TABLE>
_____________
(1) Represents the fair market value of the underlying shares on the date of
exercise less the exercise or base price, and does not necessarily imply
that the shares were sold by the optionee.
(2) Mr. Sander's employment commenced in October 1996.
(3) Mr. Petersen and Dr. King's employment with the Company terminated in March
1996 and their options terminated on September 30, 1996.
<PAGE>
EMPLOYMENT AGREEMENTS
Pursuant to an executive employment agreement between the Company and Larry
G. Stambaugh, the Chairman, President and Chief Executive Officer of the
Company, dated November 12, 1996, Mr. Stambaugh receives an annual salary of not
less than $225,000, an annual bonus in an amount up to 30% of his annualized
base salary, and equity compensation as determined by the Board of Directors.
The term of Mr. Stambaugh's employment agreement expires on December 31, 1998.
The employment agreement also provides that, if Mr. Stambaugh's employment is
terminated without cause, he will receive a severance payment equal to his then
annual base salary plus health care insurance coverage for one year or the
remainder of the term of his employment agreement, whichever is greater.
Mr. Stambaugh's stock option agreements provide that such options will become
fully exercisable in the event his employment is terminated without cause or
following a change in control of the Company. If Mr. Stambaugh's employment is
terminated with cause or he resigns, he will receive a portion of his salary
prorated as of the date his employment is terminated. In addition, the Company
has agreed to maintain a life insurance policy in the amount of $1,000,000 on
Mr. Stambaugh's behalf.
Pursuant to an executive employment agreement between the Company and Kurt
R. Gehlsen, Ph.D., the Vice President, Development and Chief Technical Officer
of the Company, dated October 1, 1996, Dr. Gehlsen receives an annual salary of
not less than $140,000. The term of Dr. Gehlsen's employment agreement expires
on December 31, 1998. The employment agreement also provides that, if
Dr. Gehlsen's employment is terminated without cause, he will receive a
severance payment equal to his then base salary for six months. Dr. Gehlsen's
stock option agreements provide that such options will become fully exercisable
in the event his employment is terminated without cause or following a change in
control of the Company. If Dr. Gehlsen's employment is terminated with cause or
he resigns, he will receive a portion of his salary prorated as of the date his
employment is terminated.
Pursuant to an executive employment agreement between the Company and Dale
A. Sander, the Vice President, Finance and Chief Financial Officer of the
Company, dated October 1, 1996, Mr. Sander receives an annual salary of not less
than $125,000. The term of Mr. Sander's employment agreement expires on December
31, 1997. The employment agreement also provides that, if Mr. Sander's
employment is terminated without cause, he will receive a severance payment
equal to his then base salary for six months. Mr. Sander's stock option
agreement provides that such options will become fully exercisable in the event
his employment is terminated without cause or following a change in control of
the Company. If Mr. Sander's employment is terminated with cause or he resigns,
he will receive a portion of his salary prorated as of the date his employment
is terminated.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION(1)
The Company's executive compensation program is administered by the Compensation
Committee (the "Committee") of the Board of Directors. The Committee is
appointed by the Board and is comprised of three outside, non-employee
Directors. The Committee has responsibility for all compensation matters
concerning the Company's executive officers.
COMPENSATION PHILOSOPHY
The Board's executive compensation program strongly links management pay
with the Company's annual and long-term performance. The program is intended to
attract, motivate and retain senior management by providing compensation
opportunities that are consistent with Company performance. The program
provides for base salaries which reflect such factors as level of
responsibility, individual performance, internal fairness and external
competitiveness; annual incentive cash bonus awards which are payable upon the
Company's achievement
____________________
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended (the
"Securities Act") or the Exchange Act, whether made before or after the
date hereof and irrespective of any general incorporation language
contained in such filing.
<PAGE>
of annual financial and management objectives approved by the Board; and
long-term incentive opportunities in the form of stock options and other equity
incentives which strengthen the mutuality of interest between management and the
Company's stockholders. Each executive officer's target total annual
compensation (i.e., salary plus bonus) is determined after a review of
independent survey data regarding similarly situated executives at firms in the
Company's industry. While the income tax implications of the compensation
program to the Company and its division executive officers are continually
assessed, including the $1 million per covered employee limitation on the
compensation expenses deductible by the Company, they are not presently a
significant factor in the administration of the program.
The Company strives to provide compensation opportunities which emphasize
effectively rewarding management for the achievement of critical performance
objectives. The Committee supports a pay-for-performance policy that determines
compensation amounts based on Company and individual performance. While the
establishment of base salaries turns principally on the factors noted above,
annual incentive bonuses for senior corporate executives are based on the
performance of the Company as a whole. In addition, the program provides stock
incentive opportunities designed to align the interests of executives and other
key employees with other stockholders through the ownership of Common Stock.
The following is a discussion of each of the elements of the Company's executive
compensation program including a description of the decisions and actions taken
by the Committee with respect to compensation in fiscal 1996 for the Chief
Executive Officer and all executive officers as a group.
MANAGEMENT COMPENSATION PROGRAM
Compensation paid to the Company's executive officers for fiscal 1996 (as
reflected in the foregoing tables with respect to the Named Executive Officers)
consisted of the following elements: base salary, annual incentive cash bonuses
under the Company's incentive bonus plans and stock options and other equity
incentives under the Incentive Plan.
BASE SALARY
With respect to determining the base salary of executive officers, the
Committee takes into consideration a variety of factors including the
executive's levels of responsibility and individual performance, and the
salaries of similar positions in the Company and in comparable companies in the
Company's industry. The Committee believes that its process for determining and
adjusting the base salary of executive officers is fully consistent with sound
personnel practices. Annual adjustments in base salaries typically are made
effective at the beginning of the fiscal year for which they are intended to
apply and therefore reflect in large part the prior year's business and
individual performance achievements.
ANNUAL INCENTIVE BONUS PROGRAM
The Company's incentive bonus program for its executive officers (including
the Named Executive Officers) is based on the achievement of annual performance
targets and other management objectives which are established annually, but
which are subject to adjustment as the Committee deems appropriate. The
Company's targets and objectives consist of operating, strategic and financial
goals that are considered to be critical to the Company's fundamental long-term
goal -- building stockholder value. For fiscal 1996 these goals were:
- completion of the Company's initial public offering and private
financings
- clinical milestones for key products currently in human clinical
testing
- identifying and developing products in the research pipeline as
candidates for clinical testing
- implementing strategies relating to the manufacturing of key products
- identifying additional potential uses for the Company's key products
and technologies
Final calculation of the Company's financial performance and determination
and payment of the awards is made as soon as is practicable after the completion
of the Company's fiscal year. Individual incentive bonus awards to executive
officers for the Company's 1996 fiscal year were determined by the Committee
based on application of the aforementioned factors to the Company's performance
for fiscal 1996 and were paid after its conclusion.
<PAGE>
1993 LONG-TERM INCENTIVE PLAN
The long term incentive element of the Company's management compensation
program provides for grants of stock awards, which now include (i) incentive
stock options, (ii) nonstatutory stock options, (iii) stock bonuses, (iv) rights
to purchase restricted stock and (v) stock appreciation rights. These
discretionary stock awards are granted and administered by the Committee under
the Incentive Plan which is intended to create an opportunity for employees of
the Company to acquire an equity ownership interest in the Company and thereby
enhance their efforts in the service of the Company and its stockholders. The
compensatory and administrative features of the Incentive Plan conform in all
material respects to the design of standard comparable plans in industry and
are, in the Committee's estimation, fair and reasonable.
Stock options granted to the Company's executive officers and other
employees of the Company typically include vesting provisions of up to five
years. The Committee believes that by rationing the exercisability of these
stock options over future years, the executive retention impact of the
Incentive Plan will be strengthened and management's motivation to enhance the
value of the Company's stock will be constructively influenced.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Stambaugh's annual incentive bonus award for fiscal 1996 was earned
under the same plan applicable to all other executive officers of the Company.
Based on the performance of the Company in the prior fiscal year and the
Committee's assessment of Mr. Stambaugh's ongoing personal performance in the
position of Chief Executive Officer, Mr. Stambaugh received an annual incentive
bonus award equal to approximately 37.5% of his fiscal 1996 year-end salary.
Among the factors considered by the Committee in its consideration of
Mr. Stambaugh's bonus were the continued success of the Company's technology
development and the successful completion of the Company's initial public stock
offering and private financings.
Mr. Stambaugh was granted stock options under the Incentive Plan for
233,333 shares of Common Stock on May 2, 1996, at the option price of $3.75 per
share, and 83,333 shares on November 11, 1996, at the option price of $9.00. He
is eligible to receive additional option grants in the future at the discretion
of the Committee.
SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
executive officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code.
The statute containing this law and the applicable Treasury regulations
offer a number of transitional exceptions to this deduction limit for
pre-existing compensation plans, arrangements and binding contracts. As a
result, the Committee believes that at the present time it is quite unlikely
that the compensation paid to any Named Executive Officer in a taxable year
which is subject to the deduction limit will exceed $1 million. The Committee
has determined that stock options granted under the Incentive Plan with an
exercise price at least equal to the fair market value of the Company's common
stock on the date of grant shall be treated as "performance-based compensation"
under Section 162(m) of the Code. The Compensation Committee has not yet
established a policy for determining which other forms of incentive compensation
awarded to its Named Executive Officers shall be designed to qualify as
"performance-based compensation." The Compensation Committee intends to
continue to evaluate the effects of the statute and any Treasury regulations and
to comply with Code Section 162(m) in the future to the extent consistent with
the best interests of the Company.
G. Steven Burrill
Per-Olof Martensson
Colin B. Bier, Ph.D.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Company's compensation committee consists of
Messrs. Burrill and Martensson and Dr. Bier. Messrs. Burrill and Martensson and
Dr. Bier have never served as officers or employees of the Company.
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows a comparison of cumulative total returns for the
Company, the Hambrecht & Quist Biotech Index and the American Stock Exchange
Market Index for the period that commenced July 10, 1996 (the date on which the
Company's Common Stock was first traded on the American Stock Exchange) and
ended on September 30, 1996. The graph assumes that all dividends have been
reinvested.
RESEARCH Total Return-Data Summary
MMP
CUMULATIVE TOTAL RETURN
---------------------------------
7/96 9/96
MAXIM PHARMACEUTICALS INC MMP 100 135
AMEX MARKET VALUE LAMX 100 99
H & Q BIOTECHNOLOGY IHQB 100 106
_________________________________
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
<PAGE>
CERTAIN TRANSACTIONS
On July 5, 1996, the Company sold its interest in its subsidiary, Syntello
Vaccine Development AB ("SVD") to Dr. Anders Vahlne, a former member of the
Company's Board of Directors, for $1.00. In connection with such sale, SVD
granted to the Company a non-exclusive sub-license to the CTB mucosal vaccine
carrier technology for vaccines to treat or prevent HIV infection.
On May 17, 1996, the Company sold and issued to SE Banken Lakemedelsfonder
("SE Banken"), a beneficial owner of more than 5% of the outstanding securities
of the Company, 400,000 shares of the Company's Common Stock at a purchase price
of $4.50 per share.
In May 1996, the Company and each of the holders of outstanding warrants to
purchase an aggregate 332,741 shares of the Company's Common Stock agreed to
amend and restate such warrants to, among other things, remove certain
provisions relating to early termination of the warrants and provisions
adjusting the exercise prices of the warrants upon certain dilutive stock
issuances. The Company did not receive any additional cash consideration to
amend and restate such warrants, and the expiration dates of the amended and
restated warrants remain the same as the original warrants. The following
affiliates or beneficial owners of more than 5% of the outstanding securities of
the Company agreed to the amendment and restatement of warrants to purchase the
number of shares set forth opposite their names:
NUMBER OF
WARRANT HOLDER SHARES
-------------- ---------
Ventana Group(1) . . . . . . . . . . . . . . . . . . 33,072
Atrix-Ventana Investment & Company L.P . . . . . . . 10,673
(1) Ventana Group includes warrants to purchase 16,666, 1,825, 5,831
and 8,750 shares of Common Stock held by Ventana Growth Fund II
L.P., Ventana Growth Capital Fund V L.P., Ventana Partnership III
L.P. and F. Duwaine Townsen, a director of the Company and a
general partner of the foregoing entities, respectively. All of
such warrants shall expire in August or November 1998, or May
1999, as the case may be.
In February 1996, the Company entered into an agreement with a predecessor
company of Burrill & Company, Inc. ("B&C"). G. Steven Burrill, a director of the
Company, is the Chief Executive Officer and a principal of B&C. Pursuant to the
agreement, the Company will pay B&C a retainer of $10,000 per month for three
years, and the Company has granted B&C a warrant expiring in February 2003 to
purchase up to 173,333 shares of its Common Stock at an exercise price of $3.00
per share. One-half of the shares subject to this warrant vest ratably over 36
months from the date of the agreement and the other one-half of such shares vest
30 days prior to the expiration of the seven year term of the warrant; provided,
however, that vesting with respect to such shares may accelerate in connection
with certain performance-based events set forth in the agreement. In exchange
for such consideration, B&C will provide strategic planning and advisory
services to the Company and will locate sources of private equity financing and
strategic corporate partners to assist in the development of the Company's
product candidates.
In January 1996, the Company completed a private financing pursuant to
which the Company issued 473,329 shares of its Common Stock and warrants
expiring in January 1999 to purchase an additional 94,663 shares of Common
Stock. In connection with such financing, SE Banken, a beneficial owner of more
than 5% of the outstanding securities of the Company, purchased 40,000 shares of
Common Stock and warrants to purchase an additional 8,000 shares of Common
Stock. The warrants issued in such financing are fully vested, have an exercise
price of $3.00 per share and expire three years from their date of issuance.
Such warrants were amended and restated in May 1996 as described above.
In October and December of 1995, Ventana II purchased 41,666 and 62,000
shares of the Company's Common Stock at $3.00 per share. In March 1995, the
Company issued a $250,000 principal amount demand promissory note to Ventana II.
To secure the repayment obligations under such note, the Company granted Ventana
II a security interest in all of its tangible and intangible property. The
Company repaid the note in September 1996.
<PAGE>
In December 1994 and May 1995, Ventana Growth Capital Fund V L.P. ("Ventana
V"), Ventana Growth Fund II L.P. ("Ventana II") and Atrix-Ventana Investment &
Company L.P. ("Atrix-Ventana"), each a beneficial owner of more than 5% of the
outstanding securities of the Company, as well as Paladin Equities (1991), Inc.,
an entity affiliated with a director and officer of the general partner of
Atrix-Ventana ("Paladin"), posted certificates of deposit aggregating $2,250,000
as collateral for lines of credit extended by Scripps Bank and Valle de Oro Bank
to the Company. In consideration for collateralizing the lines of credit, the
Company issued warrants to purchase 421, 16,666, 7,078 and 1,250 shares of
Common Stock with an exercise price of $7.20 per share to Ventana V, Ventana II,
Atrix-Ventana and Paladin, respectively. Such warrants shall expire in November
1998, December 1998, November 1998 and May 1999, respectively. The certificates
of deposit posted by Ventana V, Ventana II, Atrix-Ventana and Paladin were
guaranteed by Ventana Growth Fund III, L.P. ("Ventana III") and F. Duwaine
Townsen, a director of the Company. Ventana III and Mr. Townsen received
warrants to purchase 5,831 and 8,750 shares of Common Stock, respectively, for
guaranteeing such certificates of deposit. Such warrants shall expire in
November 1998 and May 1999, respectively. In September 1995, the Company,
Ventana V, Ventana II, Atrix-Ventana and Paladin reached an agreement to release
the collateral securing the lines of credit to permit the lines of credit to be
fully repaid. In December 1995, in return for the cancellation of the
indebtedness created by such release of collateral, the Company issued 28,066,
166,666, 471,866 and 83,333 shares of Common Stock at a purchase price of $3.00
per share to Ventana V, Ventana II, Atrix-Ventana and Paladin, respectively.
During the period from September 1994 through July 1995, Ventana II, a
beneficial owner of more than 5% of the outstanding securities of the Company,
loaned the Company an aggregate of $975,000 pursuant to demand promissory notes
bearing annual interest at the prime lending rate plus 2%. Approximately
$500,000 of principal and $9,507 of accrued interest under such notes were
repaid by the Company in fiscal 1995. In August 1995, the Company and Ventana II
reached an agreement pursuant to which the Company treated $225,000 of such
loans as an advance toward Ventana II's purchase of shares of Common Stock, at a
purchase price of $3.00 per share, in the Company's August 1995 financing. In
December 1995, Ventana II converted the remaining $250,000 of principal and
approximately $9,224 of accrued interest into shares of Common Stock at a
conversion price of $3.00 per share. These transactions resulted in the issuance
of approximately 161,408 shares of Common Stock to Ventana II.
During the period from October 1993 through July 1994, the Company financed
its operations by issuing promissory notes in the aggregate principal amount of
$3,405,000 and related five year warrants to purchase 11,251 shares of the
Company's Common Stock. Among the investors in such financing transactions were
(i) F. Duwaine Townsen, a director of the Company and a managing partner of
Ventana V, (ii) Merle and Eileen Stambaugh, parents of Larry G. Stambaugh, the
Company's President, Chief Executive Officer and Chairman of the Board, and
(iii) Ventana V and Atrix-Ventana, each of which beneficially owns more than 5%
of the outstanding securities of the Company. In August 1994, such indebtedness
was converted into shares of Common Stock at a price of $3.00 per share, the
related warrants were amended and exercised at $3.00 per share and new warrants
expiring in August 1998 to purchase up to an additional 11,251 shares of Common
Stock at an exercise price of $3.00 per share were issued. The new warrants
issued pursuant to such debt conversion were amended and restated in May 1996 as
described above. As a result of such debt conversion, warrant exercise and
amendment and restatement of warrants, the Company issued the following number
of shares of Common Stock and warrants to the interested parties described
above:
NUMBER
NUMBER OF
STOCKHOLDER OF SHARES WARRANTS
----------------------------- --------- --------
Atrix-Ventana . . . . . . . . . . . . . . . 385,970 3,595
Ventana V . . . . . . . . . . . . . . . . . 159,742 1,404
Merle and Eileen Stambaugh . . . . . . . . 10,688 100
F. Duwaine Townsen . . . . . . . . . . . . 8,884 83
The Company has also entered into an employment agreement with its three
executive officers, as described under the caption "Executive Compensation --
Employment Agreements." As described in "Executive
<PAGE>
Compensation -- Compensation of Directors" and "-- Compensation of Executive
Officers," the Company has granted stock options to certain directors and
executive officers of the Company.
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and officers.
In addition, the Company's Certificate of Incorporation provides that to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, for acts or omissions that
the director believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company, and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ Dale A. Sander
-------------------------------------
Dale A. Sander
Secretary
January 10, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, MAXIM
PHARMACEUTICALS, INC., 3099 SCIENCE PARK ROAD, SUITE 150, SAN DIEGO, CALIFORNIA
92121.
<PAGE>
EXHIBIT A
MAXIM PHARMACEUTICALS, INC.
1993 LONG-TERM INCENTIVE PLAN
As Amended and Restated March 18, 1996
As Amended and Restated December 20, 1996
1. DEFINITIONS
In this Plan, except where the context otherwise indicates, the following
definitions apply:
1.1 "Agreement" means a written agreement implementing a grant of an
Option, Right or Performance Unit or an award of Restricted Stock or Incentive
Shares.
1.2 "Board" means the Board of Directors of the Company.
1.3 "Board Committee" means a current or future committee of the Board.
1.4 "Board Committee Meeting" means a meeting of a Board Committee.
1.5 "CEO" means the Company's chief executive officer.
1.6 "Code" means the Internal Revenue Code of 1986, as amended.
1.7 "Committee" means the committee of the Board meeting the standards of
Rule 16b-3(c)(2)(i) under the Exchange Act, or any similar successor rule,
appointed by the Board to administer the Plan. Unless otherwise determined by
the Board, the Compensation Committee of the Board shall be the Committee.
1.8 "Common Stock" means the common stock, par value $.001 per share, of
the Company.
1.9 "Company" means Maxim Pharmaceuticals, Inc.
1.10 "Consultant" means any person or entity performing services for the
Company or any Subsidiary other than as a Director or employee of the Company,
and who is not also a director or officer of the Company for purposes of Section
16(a) of the Exchange Act or a person who would be a director or officer of the
Company for purposes of Section 16(a) of the Exchange Act if the Common Stock
was registered under Section 12 of the Exchange Act.
1.
<PAGE>
1.11 "Consultant-Director" means any member of the Board who also is
performing services for the Company or any Subsidiary other than as a Director
or an employee of the Company.
1.12 "Covered Employee" means the CEO and the four (4) other highest
compensated officers of the Company for whom total compensation is required to
be reported to stockholders under the Exchange Act, as determined for purposes
of Section 162(m) of the Code.
1.13 "Date of Exercise" means the date on which the Company receives notice
of the exercise of an Option, Right or Performance Unit in accordance with the
terms of Article 10.
1.14 "Date of Grant" means the date on which an Option, Right or
Performance Unit is granted or Restricted Stock or Incentive Shares are awarded
by the Committee or the CEO, as the case may be.
1.15 "Director" means any person who is a member of the Board and who is
not also an employee of the Company.
1.16 "Employee" means any person determined by the CEO to be an employee of
the Company or any Subsidiary and who is not also a director or officer of the
Company for purposes of Section 16(a) of the Exchange Act or a person who would
be a director or officer of the Company for purposes of Section 16(a) of the
Exchange Act if the Common Stock was registered under Section 12 of the Exchange
Act.
1.17 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.18 "Excused Absence" means a Director's absence from a Scheduled Meeting
or a Board Committee Meeting due to illness, disability or family emergency.
1.19 "Fair Market Value" of a Share means the amount equal to the closing
sales price for a Share in the principal trading market for the Shares as
reported by such source as the Committee may select, or, if such price
quotations of the Common Stock are not then reported, then the fair market value
of a Share as determined by the Committee pursuant to a reasonable method
adopted in good faith for such purpose.
1.20 "Grantee" means an Employee, Covered Employee, Key Employee,
Consultant-Director or Consultant to whom Restricted Stock has been awarded
pursuant to Article 12 or Incentive Shares have been awarded pursuant to
Article 13.
1.21 "Incentive Shares" means Shares awarded pursuant to the provisions of
Article 13.
2
<PAGE>
1.22 "Incentive Stock Option" means an Option granted under the Plan that
qualifies as an incentive stock option under Section 422 of the Code and that
the Company designates as such in the Agreement granting the Option.
1.23 "Key Employee" means any person determined by the Committee to be an
employee of the Company or any Subsidiary and who is a director or officer of
the Company for purposes of Section 16(a) of the Exchange Act, or who would be a
director or officer of the Company for purposes of Section 16(a) of the Exchange
Act if the Common Stock was registered under Section 12 of the Exchange Act.
1.24 "Nonstatutory Stock Option" means an Option granted under the Plan
that is not an Incentive Stock Option.
1.25 "Option" means an option to purchase Shares granted under the Plan in
accordance with the terms of Article 7.
1.26 "Optionee" means a Director, Employee, Covered Employee, Key Employee,
Consultant-Director or Consultant to whom an Option, Right or Performance Unit
has been granted.
1.27 "Option Period" means the period during which an Option may be
exercised.
1.28 "Option Price" means the price per Share at which an Option may be
exercised. The Option Price shall be determined by the Committee, or by the
CEO, in the case of an Option granted to an Employee or Consultant, except that
in no event shall the Option Price be less than the par value of the Common
Stock or, in the case of an Incentive Stock Option, the greater of the Fair
Market Value per Share determined as of the Date of Grant or the par value of
the Common Stock.
1.29 "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
1.30 "Performance Unit" means a performance unit granted under the Plan in
accordance with the terms of Article 9.
3
<PAGE>
1.31 "Performance Unit Period" means the period during which a Performance
Unit may be exercised.
1.32 "Plan" means the Maxim Pharmaceuticals, Inc. 1993 Long-Term Incentive
Plan.
1.33 "Related Option" means the Option with which, or by amendment to
which, a specified Right or Performance Unit is granted.
1.34 "Related Performance Unit" means the Performance Unit granted in
connection with, or by amendment to, a specified Option.
1.35 "Related Right" means the Right granted in connection with, or by
amendment to, a specified Option.
1.36 "Restricted Stock" means Shares awarded pursuant to the provisions of
Article 12.
1.37 "Right" means a stock appreciation right granted under the Plan in
accordance with the terms of Article 8.
1.38 "Right Period" means the period during which a Right may be exercised.
1.39 "Scheduled Meeting" means the four regular meetings of the Board
scheduled to be held during each of the Company's fiscal years or, if more than
four regular meetings are scheduled, the four meetings designated as Scheduled
Meetings by the Board in scheduling its regular meetings for the year.
1.40 "Share" means a share of Common Stock.
1.41 "Subsidiary" means a corporation at least 50% of the total combined
voting power of all classes of stock of which is owned by the Company either
directly or through one or more Subsidiaries.
2. PURPOSE
This Plan is intended to aid in attracting qualified employees, directors
and consultants and in maintaining and developing strong management and employee
loyalty through encouraging the ownership of Common Stock by Directors and
selected Employees, Covered Employees, Key Employees, Consultant-Directors and
Consultants through stimulating their efforts by giving suitable recognition, in
addition to other remuneration, to the ability and industry which contribute
materially to the success of the Company's business interests, and to provide an
incentive to the continued service of such
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Directors, Employees, Covered Employees, Key Employees, Consultant-Director and
Consultants.
3. ADMINISTRATION (OTHER THAN GRANTS OR AWARDS TO EMPLOYEES AND CONSULTANTS)
Except with respect to grants or awards to Employees and Consultants, this
Plan shall be administered by the Committee. In addition to any other powers
granted to the Committee, the Committee shall have the following powers, subject
to the express provisions of the Plan:
3.1 subject to the provisions of Articles 5, 7, 8, 9, 10, 11, 12 and 13,
to determine in its discretion the Directors, Covered Employees, Key Employees
and Consultant-Directors to whom Options, Rights or Performance Units shall be
granted and to whom Restricted Stock and Incentive Shares shall be awarded, the
number of Shares to be subject to each Option, Right, Performance Unit,
Restricted Stock or Incentive Share award, and the terms upon which Options,
Rights or Performance Units may be acquired and exercised and the terms and
conditions of Restricted Stock and Incentive Share awards;
3.2 to determine all other terms and provisions of each Agreement, which
need not be identical;
3.3 without limiting the foregoing, to provide in its discretion in an
Agreement:
(i) for an agreement by the Optionee or Grantee to render services to
the Company or a Subsidiary upon such terms and conditions as may be specified
in the Agreement, provided that the Committee shall not have the power by virtue
of the Plan to commit the Company or a Subsidiary to employ or otherwise retain
any Optionee or Grantee;
(ii) for restrictions on the transfer, sale or other disposition of
Shares issued to the Optionee upon the exercise of an Option, Right or
Performance Unit, for other restrictions permitted by Article 12 with respect to
Restricted Stock and for conditions with respect to the issuance of Incentive
Shares;
(iii) for an agreement by the Optionee or Grantee to resell to the
Company, under specified conditions, Shares issued upon the exercise of an
Option, Right or Performance Unit or awarded as Restricted Stock or Incentive
Shares;
(iv) for the payment of the Option Price upon the exercise of an
Option otherwise than in cash, including without limitation by delivery of
Shares (other than Restricted Stock) valued at Fair Market Value on the Date of
Exercise of the Option, or a
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combination of cash and Shares, or for the payment in part of the Option Price
with a promissory note in accordance with the terms of Section 10.2; and
(v) for the deferral of receipt of amounts that otherwise would be
distributed upon exercise of a Performance Unit, the terms and conditions of any
such deferral and any interest or dividend equivalent or other payment that
shall accrue with respect to deferred distributions;
3.4 to construe and interpret the Agreements and the Plan;
3.5 to require, whether or not provided for in the pertinent Agreement, of
any person exercising an Option, Right or Performance Unit or acquiring
Restricted Stock or Incentive Shares, at the time of such exercise or
acquisition, the making of any representations or agreements which the Committee
may deem necessary or advisable in order to comply with the securities laws of
the United States or of any state;
3.6 to provide for satisfaction of an Optionee's or Grantee's tax
liabilities arising in connection with the Plan through, without limitation,
retention by the Company of Shares otherwise issuable on the exercise of a
Nonstatutory Stock Option, Right or Performance Unit or pursuant to an award of
Incentive Shares or through delivery of Shares to the Company by the Optionee or
Grantee under such terms and conditions as the Committee deems appropriate; and
3.7 to make all other determinations and take all other actions necessary
or advisable for the administration of the Plan, including action delegating to
a subcommittee of two (2) or more Outside Directors any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Committee shall thereafter be to such a subcommittee).
Any determinations or actions made or taken by the Committee pursuant to
this Article 3 shall be binding and final.
4. ADMINISTRATION FOR GRANTS AND AWARDS TO EMPLOYEES AND CONSULTANTS
In the case of grants or awards to Employees and Consultants, this Plan
shall be administered by the CEO. In addition to any other powers granted to
the CEO, the CEO shall have all of the powers with respect to grants or awards
to Employees and Consultants set forth in Article 3 that the Committee has with
respect to grants or awards to Directors, Covered Employees, Key Employees and
Consultant-Directors. When exercising authority pursuant to this Plan, the CEO
shall be acting as a committee of the Board. If the CEO is not a member of the
Board, then the powers of the CEO hereunder shall be exercised by the Committee.
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5. ELIGIBILITY
Options, Rights, Performance Units, Restricted Stock and Incentive Shares
may be granted or awarded only to Directors, Employees, Covered Employees, Key
Employees, Consultant-Directors and Consultants, except that Directors,
Consultant-Directors and Consultants (other than Consultants who also are
Employees, Covered Employees or Key Employees) are not eligible to receive
Incentive Stock Options. A Director, Employee, Covered Employee, Key Employee,
Consultant-Director or Consultant who has been granted an Option, Right or
Performance Unit or awarded Restricted Stock or Incentive Shares may be granted
additional Options, Rights or Performance Units or awarded additional Restricted
Stock or Incentive Shares.
6. STOCK SUBJECT TO THE PLAN
6.1 There is hereby reserved for issuance upon the exercise of Options,
Rights or Performance Units or for awards of Restricted Stock or Incentive
Shares an aggregate of 1,000,000 authorized but unissued or reacquired Shares.
6.2 If an Option, Right or Performance Unit (other than a Related Right or
Related Performance Unit) expires or terminates for any reason (other than, in
the case of an Option, termination by virtue of the exercise of a Related Right
or Related Performance Unit) without having been fully exercised, if Shares of
Restricted Stock are forfeited or if Incentive Shares are not issued, any
unissued or forfeited Shares which had been subject to the Agreement relating
thereto shall become available for the grant of other Options, Rights or
Performance Units or for the award of additional Restricted Stock or Incentive
Shares, provided, that in the case of forfeited Shares, the Grantee has received
no dividends prior to forfeiture with respect to such Shares.
6.3 The Shares issued upon the exercise of a Right or Performance Unit
(or, if cash is payable in connection with such exercise, that number of Shares
with respect to which the Right or Performance Unit is exercised), shall be
charged against the number of Shares issuable under the Plan and shall not
become available for the grant of other Options, Rights or Performance Units or
for the award of Restricted Stock or Incentive Shares.
6.4 Subject to the provisions of Article 14 relating to capital
adjustments, no Director, Employee, Covered Employee, Key Employee,
Consultant-Director, or Consultant shall be eligible to be granted Options and
Rights covering more than two hundred thousand (200,000) shares of Common Stock
in any calendar year. Shares subject to an Option or Right that is canceled
shall continue to be counted against the maximum award of Options and Rights
permitted to be granted pursuant to this Section
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6.4. The repricing of an Option and/or Right which results in a reduction of
the exercise price, shall be deemed to be a cancellation of the original Option
and/or Right and the grant of a substitute Option and/or Right; in the event of
such repricing, both the original and the substituted Options and Rights shall
be counted against the maximum awards of Options and Rights permitted to be
granted pursuant to this Section 6.4. The provisions of this Section 6.4 shall
be applicable only to the extent required by Section 162(m) of the Code.
7. OPTIONS
7.1 Subject to the provisions of Article 5, the Committee is hereby
authorized to grant Options to Directors, Covered Employees, Key Employees and
Consultant-Directors, and the CEO is hereby authorized to grant Options to
Employees and Consultants.
7.2 All Agreements granting Options shall contain a statement that the
Option is intended to be either (i) a Nonstatutory Stock Option or (ii) an
Incentive Stock Option.
7.3 The Option Period shall be determined by the Committee, or, in the
case of an Option granted to an Employee or Consultant, by the CEO, and
specifically set forth in the Agreement, provided, however, that an Option shall
not be exercisable after ten years from the Date of Grant.
7.4 All Incentive Stock Options granted under the Plan shall comply with
the provisions of the Code governing incentive stock options and with all other
applicable rules and regulations.
7.5 All other terms of Options granted under the Plan shall be determined
by the Committee in its sole discretion, or, in the case of an Option granted to
an Employee or Consultant, by the CEO in his sole discretion.
8. RIGHTS
8.1 The Committee is hereby authorized to grant Rights to Covered
Employees, Key Employees and Consultant-Directors, and the CEO is hereby
authorized to grant Rights to Employees and Consultants.
8.2 A Right may be granted under the Plan:
(i) in connection with, and at the same time as, the grant of an
Option under the Plan;
(ii) by amendment of an outstanding Nonstatutory Stock Option granted
under the Plan; or
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(iii) independently of any Option granted under the Plan.
A Right granted under clause (i) or (ii) of the preceding sentence is a
Related Right. A Related Right may, in the Committee's discretion, or, in the
case of a Right granted to an Employee or Consultant, in the CEO's discretion,
apply to all or a portion of the Shares subject to the Related Option.
8.3 A Right may be exercised in whole or in part as provided in the
Agreement, and, subject to the provisions of the Agreement, entitles its
Optionee to receive, without any payment to the Company (other than required tax
withholding amounts), either cash or that number of Shares (equal to the highest
whole number of Shares), or a combination thereof, in an amount or having a Fair
Market Value determined as of the Date of Exercise not to exceed the number of
Shares subject to the portion of the Right exercised multiplied by an amount
equal to the excess of (i) the Fair Market Value of a Share on the Date of
Exercise of the Right over (ii) either (A) the Fair Market Value of a Share on
the Date of Grant of the Right if it is not a Related Right, or (B) the Option
Price as provided in the Related Option if the Right is a Related Right.
8.4 The Right Period shall be determined by the Committee, or, in the case
of a Right granted to an Employee or Consultant, by the CEO, and specifically
set forth in the Agreement, provided, however --
(i) a Right may not be exercised until the expiration of six months
from the Date of Grant (except that this limitation need not apply in the case
of a cash-only Right or in the event of the death or disability of the Optionee
within the six-month period);
(ii) a Right will expire no later than the earlier of (A) ten years
from the Date of Grant, or (B) in the case of a Related Right, the expiration of
the Related Option;
(iii) a Right may be exercised only when the Fair Market Value of a
share of Common Stock exceeds either (A) the Fair Market Value of a share of
Common Stock on the Date of Grant of the Right if it is not a Related Right, or
(B) the Option Price as provided in the Related Option if the Right is a Related
Right; and
(iv) a Right that is a Related Right to an Incentive Stock Option may
be exercised only when and to the extent the Related Option is exercisable.
8.5 The exercise, in whole or in part, of a Related Right shall cause a
reduction in the number of Shares subject to the Related Option equal to the
number of Shares with respect to which the Related Right is exercised.
Similarly, the exercise, in whole or in part, of a Related Option shall cause a
reduction in the number of Shares subject to the
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Related Right equal to the number of Shares with respect to which the Related
Option is exercised.
8.6 Unless the Committee otherwise requires, Rights granted under the Plan
(other than cash-only Rights) to Covered Employees, Key Employees and
Consultant-Directors shall comply with the requirements of Rule 16b-3(e) under
the Exchange Act beginning with the date the Company's Common Stock is first
registered under Section 12 of the Exchange Act. Should any provision of this
Article 8 necessary for that purpose at the date of adoption of this Plan by the
Board no longer be necessary to comply with the requirements of Rule 16b-3(e) or
should any additional provisions be necessary for this Article 8 to comply with
the requirements of Rule 16b-3(e), the Board or the Committee may amend this
Plan to delete, add to or modify the provisions of the Plan accordingly. The
Company intends to comply, if and to the extent applicable, with the public
information and reporting requirements of Rule 16b-3(e)(1); however, the
Company's failure for any reason whatsoever to comply with such requirements or
with any other requirements of Rule 16b-3, and any resultant unavailability of
Rule 16b-3(e) to Optionees shall not impose any liability on the Company to any
Optionee or any other party.
8.7 To the extent required by Rule 16b-3(e) under the Exchange Act or
otherwise provided in the Agreement, the Committee shall have sole discretion to
consent to or disapprove the election of any Optionee who is a Covered Employee,
Key Employee or Consultant-Director to receive cash in full or partial
settlement of a Right. In cases where an election of settlement in cash must be
consented to by the Committee, the Committee may consent to, or disapprove, such
election at any time after such election, or within such period for taking
action as is specified in the election, and failure to give consent shall be
disapproval. Consent may be given in whole or as to a portion of the Right
surrendered by the Optionee. If the election to receive cash is disapproved in
whole or in part, the Right shall be deemed to have been exercised for Shares,
or, if so specified in the notice of exercise and election, not to have been
exercised to the extent the election to receive cash is disapproved.
9. PERFORMANCE UNITS
9.1 The Committee is hereby authorized to grant Performance Units to
Covered Employees, Key Employees and Consultant-Directors, and the CEO is hereby
authorized to grant Performance Units to Employees and Consultants.
9.2 A Performance Unit may be granted under the Plan:
(i) in connection with, and at the same time as, the grant of an
Option under the Plan;
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(ii) by amendment of an outstanding Nonstatutory Stock Option granted
under the Plan; or
(iii) independently of any Option granted under the Plan.
A Performance Unit granted under clause (i) or (ii) of the preceding
sentence is a Related Performance Unit. A Related Performance Unit may, in the
Committee's discretion, or, in the case of a Performance Unit granted to an
Employee or Consultant, in the CEO's discretion, apply to all or a portion of
the Shares subject to the Related Option. A Performance Unit may not be granted
in connection with, or by amendment to, an Incentive Stock Option.
9.3 A Performance Unit may be exercised in whole or in part as provided in
the Agreement, and, subject to the provisions of the Agreement, entitles its
Optionee to receive, without any payment to the Company (other than required tax
withholding amounts), cash, Shares or a combination of cash and Shares, based on
the degree to which performance standards established by the Committee or the
CEO, as the case may be, and specified in the Agreement have been achieved.
Such performance standards may be particular to an Employee, Covered Employee,
Key Employee, Consultant-Director or Consultant or the department, branch,
Subsidiary or other division in which the Optionee works, or may be based on the
performance of the Company generally, and may cover such period as may be
specified by the Committee or the CEO, as the case may be. The performance
standards may be based on earnings or earnings growth, return on assets, equity
or investment, regulatory compliance, improvement of financial ratings,
achievement of balance sheet or income statement objectives, or any other
objective goals established by the Committee or the CEO, as the case may be, and
may be absolute in their terms or measured against or in relationship to other
companies comparably, similarly or otherwise situated.
9.4 The Performance Period shall be determined by the Committee, or, in
the case of a Performance Unit granted to an Employee or Consultant, by the CEO,
and specifically set forth in the Agreement, provided, however --
(i) if required for purposes of Rule 16b-3 under the Exchange Act or
otherwise under the terms of the Agreement, a Performance Unit may not be
exercised until the expiration of six months from the Date of Grant (except that
this limitation need not apply in the case of a cash-only Performance Unit or in
the event of the death or disability of the Optionee within the six-month
period); and
(ii) a Performance Unit will expire no later than the earlier of (A)
ten years from the Date of Grant, or (B) in the case of a Related Performance
Unit, the expiration of the Related Option.
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9.5 Each Agreement granting Performance Units shall specify the number of
Performance Units granted, provided, however, that the maximum number of Related
Performance Units may not exceed the maximum number of Shares subject to the
Related Option.
9.6 The exercise, in whole or in part, of a Related Performance Unit shall
cause a reduction in the number of Shares subject to the Related Option and the
number of Performance Units in accordance with the terms of the Agreement.
Similarly, the exercise, in whole or in part, of a Related Option shall cause a
reduction in the number of Shares subject to the Related Performance Unit equal
to the number of Shares with respect to which the Related Option is exercised.
9.7 In the case of a Performance Unit that qualifies as a "derivative
security" within the meaning of Rule 16a-1(c) under the Exchange Act, and unless
the Committee otherwise requires, Performance Units granted under the Plan
(other than cash-only Performance Units) to Covered Employees, Key Employees or
Consultant-Directors shall comply with the requirements of Rule 16b-3 beginning
with the date the Company's Common Stock is first registered under Section 12 of
the Exchange Act. Should any provision of this Article 9 necessary for that
purpose at the date of adoption of this Plan by the Board no longer be necessary
to comply with the requirements of Rule 16b-3 or should any additional
provisions be necessary for this Article 9 to comply with the requirements of
Rule 16b-3, the Board or the Committee may amend this Plan to delete, add to or
modify the provisions of the Plan accordingly. The Company intends to comply,
if and to the extent applicable, with the public information and reporting
requirements of Rule 16b-3(e)(1); however, the Company's failure for any reason
whatsoever to comply with such requirements or with any other requirements of
Rule 16b-3, and any resultant unavailability of Rule 16b-3 to Optionees shall
not impose any liability on the Company to any Optionee or any other party.
9.8 To the extent required by Rule 16b-3(e) under the Exchange Act or
otherwise provided in the Agreement, the Committee shall have sole discretion to
consent to or disapprove the election of any Optionee who is a Covered Employee,
Key Employee or Consultant-Director to receive cash in full or partial
settlement of a Performance Unit. In cases where an election of settlement in
cash must be consented to by the Committee, the Committee may consent to, or
disapprove, such election at any time after such election, or within such period
for taking action as is specified in the election, and failure to give consent
shall be disapproval. Consent may be given in whole or as to a portion of the
Performance Unit surrendered by the Optionee. If the election to receive cash
is disapproved in whole or in part, the Performance Unit shall be deemed to have
been exercised for Shares, or, if so specified in the notice of exercise and
election, not to have been exercised to the extent the election to receive cash
is disapproved.
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10. EXERCISE
10.1 An Option, Right or Performance Unit may, subject to the provisions of
the Agreement under which it was granted, be exercised in whole or in part by
the delivery to the Company of written notice of the exercise, in such form as
the Committee or the CEO, in the case of an Option, Right or Performance Unit
granted to an Employee or Consultant, may prescribe, accompanied, in the case of
an Option, by full payment for the Shares with respect to which the Option is
exercised, unless and to the extent that the Committee, or the CEO, as the case
may be, agreed in the Agreement in which an Option was granted to accept a
promissory note as provided in Section 10.2 hereof.
10.2 To the extent permitted by applicable law, the Committee or the CEO,
in the case of an Option, Right or Performance Unit granted to an Employee or
Consultant, may agree in the Agreement in which an Option is granted to accept
as partial payment for the Shares a promissory note of the Optionee evidencing
his or her obligation to make future cash payment thereof; provided, however,
that in no event may the Committee or the CEO accept a promissory note for an
amount in excess of the difference between the aggregate Option Price and the
par value of the Shares. Promissory notes made pursuant to this Section 10.2
shall be payable as determined by the Committee or the CEO, in the case of an
Option granted to an Employee or Consultant, shall be secured by a pledge of the
Shares and shall bear interest at a rate fixed by the Committee or the CEO, in
the case of an Option granted to an Employee or Consultant.
11. NONTRANSFERABILITY
Options, Rights, Performance Units and Incentive Shares granted or awarded
under the Plan shall not be transferable otherwise than (i) by will or the laws
of descent and distribution, or (ii) except in the case of an Incentive Stock
Option, pursuant to a qualified domestic relations order as defined in
Section 414(p) of the Code, and an Option, Right or Performance Unit may be
exercised during the Optionee's lifetime only by the Optionee or, in the event
of the Optionee's legal disability, by his or her legal representative. A
Related Right or Related Performance Unit is transferable only when the Related
Option is transferable and only with the Related Option and under the same
conditions.
12. RESTRICTED STOCK AWARDS
12.1 The Committee is hereby authorized to award shares of Restricted Stock
to Covered Employees, Key Employees and Consultant-Directors, and the CEO is
hereby authorized to award shares of Restricted Stock to Employees and
Consultants.
12.2 Restricted Stock awards under the Plan shall consist of Shares that
are restricted against transfer, subject to forfeiture, and subject to such
other terms and
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conditions intended to further the purposes of the Plan as may be determined by
the Committee or the CEO, in the case of Restricted Stock awarded to an Employee
or Consultant.
12.3 Restricted Stock awards shall be evidenced by Agreements containing
provisions setting forth the terms and conditions governing such awards. Each
such Agreement shall contain the following:
(i) prohibitions against the sale, assignment, transfer, exchange,
pledge, hypothecation, or other encumbrance of (A) the Shares awarded as
Restricted Stock under the Plan, (B) the right to vote the Shares, or (C) the
right to receive dividends thereon in each case during the restriction period
applicable to the Shares; provided, however, that the Grantee shall have all the
other rights of a shareholder including, but not limited to, the right to
receive dividends and the right to vote the Shares;
(ii) at least one term, condition or restriction constituting a
"substantial risk of forfeiture" as defined in Section 83(c) of the Code;
(iii) such other terms, conditions and restrictions as the Committee
or the CEO, in the case of Restricted Stock awarded to Employees or Consultants,
in its or his discretion may specify (including, without limitation, provisions
creating additional substantial risks of forfeiture);
(iv) a requirement that each certificate representing shares of
Restricted Stock shall be deposited with the Company, or its designee, and shall
bear the following legend:
"This certificate and the shares of stock represented hereby
are subject to the terms and conditions (including the risks
of forfeiture and restrictions against transfer) contained
in the Maxim Pharmaceuticals, Inc. 1993 Long-Term
Incentive Plan and an Agreement entered into between the
registered owner and Maxim Pharmaceuticals, Inc. Release
from such terms and conditions shall be made only in
accordance with the provisions of the Plan and the
Agreement, a copy of each of which is on file in the office
of the Secretary of Maxim Pharmaceuticals, Inc."
(v) the applicable period or periods of any terms, conditions or
restrictions applicable to the Restricted Stock, provided, however, that the
Committee or the CEO, in the case of Restricted Stock awarded to an Employee or
Consultant, in its or his discretion may accelerate the expiration of the
applicable restriction period with respect to any part or all of the Shares
awarded to a Grantee; and
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(vi) the terms and conditions upon which any restrictions upon shares
of Restricted Stock awarded under the Plan shall lapse and new certificates free
of the foregoing legend shall be issued to the Grantee or his or her legal
representative.
12.4 The Committee or the CEO, in the case of Restricted Stock awarded to
an Employee or Consultant, may include in an Agreement a requirement that in the
event of a Grantee's termination of employment or other service with the Company
for any reason prior to the lapse of restrictions, all shares of Restricted
Stock shall be forfeited by the Grantee to the Company without payment of any
consideration by the Company, and neither the Grantee nor any successors, heirs,
assigns or personal representatives of the Grantee shall thereafter have any
further rights or interest in the Shares or certificates.
13. INCENTIVE SHARE AWARDS
13.1 The Committee is hereby authorized to award Incentive Shares to
Covered Employees, Key Employees and Consultant-Directors, and the CEO is hereby
authorized to award Incentive Shares to Employees and Consultants.
13.2 Incentive Shares shall be Shares that shall be issued at such times,
subject to achievement of such performance or other goals and on such other
terms and conditions as the Committee or the CEO, in the case of Incentive
Shares awarded to an Employee or Consultant, shall deem appropriate and specify
in the Agreement relating thereto.
14. CAPITAL ADJUSTMENTS
The number of Shares subject to each outstanding Option, Right or
Performance Unit or Restricted Stock or Incentive Share award and the aggregate
number of shares for which grants or awards thereafter may be made automatically
shall be adjusted proportionately in the event of a stock split or stock
dividend of or with respect to the Common Stock, and the number and class of
Shares subject to each outstanding Option, Right or Performance Unit or
Restricted Stock or Incentive Share award, the Option Price and the aggregate
number and class of shares for which grants or awards thereafter may be made
shall be subject to such adjustment, if any, as the Committee in its sole
discretion deems appropriate to reflect such events as adoption of stock rights
plans, recapitalizations, mergers, consolidations or reorganizations of or by
the Company.
15. TERMINATION OR AMENDMENT
The Board shall have the power to terminate the Plan and to amend it in any
respect, provided that, after the Plan has been approved by the shareholders of
the Company, the Board may not, without the approval of the shareholders of the
Company if such approval is then required by applicable law or in order for the
Plan to continue to satisfy the requirements of Rule 16b-3 under the Exchange
Act, amend the Plan so as to
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increase materially the number of Shares that may be issued under the Plan
(except as provided in Article 14), to modify materially the requirements as to
eligibility for participation in the Plan, to change the class of persons
eligible to receive Incentive Stock Options, or to increase materially the
benefits accruing to participants under the Plan. The Board may in its sole
discretion submit any other amendment to the Plan for shareholder approval,
including, but not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations promulgated
thereunder regarding the exclusion of performance-based compensation from the
limit on corporate deductibility of compensation paid to Covered Employees. No
termination or amendment of the Plan shall, without his or her consent,
adversely affect the rights or obligations of any Optionee or Grantee.
16. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS, RIGHTS, PERFORMANCE UNITS,
RESTRICTED STOCK AND INCENTIVE SHARES
Subject to the terms and conditions and within the limitations of the Plan,
the Committee or the CEO, in the case of a grant or award to an Employee or
Consultant, may modify, extend or renew outstanding Options, Rights and
Performance Units, or accept the surrender of outstanding options, rights and or
performance units (to the extent not theretofore exercised) granted under the
Plan or under any other plan of the Company or a company or similar entity
acquired by the Company or a Subsidiary, and authorize the granting of new
Options, Rights and Performance Units pursuant to the Plan in substitution
therefor (to the extent not theretofore exercised), and the substituted Options
may specify a lower exercise price than the surrendered options, and the
substituted Options, Rights and Performance Units may specify a longer term than
the surrendered options, rights and performance units or have any other
provisions that are authorized by the Plan. Subject to the terms and conditions
and within the limitations of the Plan, the Committee or the CEO, in the case of
a grant or award to an Employee or Consultant, may modify the terms of any
outstanding Agreement providing for awards of Restricted Stock or Incentive
Shares. Notwithstanding the foregoing, however, no modification of an Option or
Right granted under the Plan, or an award of Restricted Stock or Incentive
Shares, shall, without the consent of the Optionee or Grantee, alter or impair
any of the Optionee's or Grantee's rights or obligations.
17. EFFECTIVENESS OF THE PLAN
The Plan and any amendments requiring shareholder approval pursuant to
Article 15 are subject to approval by vote of the shareholders of the Company
within 12 months after their adoption by the Board. Subject to that approval,
the Plan and any amendments are effective on the date on which they are adopted
by the Board. Options, Rights, Performance Units, Restricted Stock and
Incentive Shares may be granted or awarded prior to shareholder approval of the
Plan or amendments, but each such Option, Right,
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Performance Unit, Restricted Stock or Incentive Share grant or award shall be
subject to the approval of the Plan or amendments by the shareholders. Except
to the extent required to satisfy the requirements of Rule 16b-3 under the
Exchange Act, the date on which any Option, Right, Performance Unit, Restricted
Stock or Incentive Shares granted or awarded prior to shareholder approval of
the Plan or amendment is granted or awarded shall be the Date of Grant for all
purposes as if the Option, Right, Performance Units, Restricted Stock or
Incentive Shares had not been subject to approval. No Option, Right or
Performance Unit may be exercised prior to such shareholder approval, and any
Restricted Stock or Incentive Shares awarded shall be forfeited if such
shareholder approval is not obtained.
18. TERM OF THE PLAN
Unless sooner terminated by the Board pursuant to Article 15, the Plan
shall terminate on September 30, 2003 and no Options, Rights, Performance Units,
Restricted Stock or Incentive Shares may be granted or awarded after
termination. The termination shall not affect the validity of any Option,
Right, Performance Unit, Restricted Stock or Incentive Shares outstanding on the
date of termination.
19. INDEMNIFICATION OF COMMITTEE AND CEO
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee and the
CEO, in the case of a grant or award to an Employee or Consultant, shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and reasonably incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option, Right, Performance Unit,
Restricted Stock or Incentive Shares granted or awarded hereunder, and against
all amounts reasonably paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, if such
members or the CEO, as the case may be, acted in good faith and in a manner
which they believed to be in, and not opposed to, the best interests of the
Company.
20. GENERAL PROVISIONS
20.1 The establishment of the Plan shall not confer upon any Director,
Employee, Covered Employee, Key Employee, Consultant-Director or Consultant any
legal or equitable right against the Company, any Subsidiary, the Committee or
the CEO, except as expressly provided in the Plan.
20.2 The Plan does not constitute inducement or consideration for the
employment of any Employee, Covered Employee, or Key Employee, or the service of
17
<PAGE>
any Director, Consultant-Director or Consultant, nor is it a contract between
the Company or a Subsidiary and any Director, Employee, Covered Employee, Key
Employee, Consultant-Director or Consultant. Participation in the Plan shall
not give a Director, Employee, Covered Employee, Key Employee,
Consultant-Director or Consultant any right to be retained in the service of the
Company or a Subsidiary.
20.3 The Company and a Subsidiary may assume options, warrants, or rights
to purchase stock issued or granted by other companies whose stock or assets
shall be acquired by the Company or a Subsidiary, or which shall be merged into
or consolidated with the Company or a Subsidiary. Neither the adoption of this
Plan, nor its submission to the shareholders, shall be taken to impose any
limitations on the powers of the Company or its affiliates to issue, grant, or
assume options, warrants, rights, performance units, restricted stock or
incentive shares, otherwise than under this Plan, or to adopt other stock
option, stock appreciation right, performance unit, restricted stock or
incentive share plans or to impose any requirement of shareholder approval upon
the same.
20.4 The interests of any Director, Employee, Covered Employee, Key
Employee, Consultant-Director or Consultant under the Plan are not subject to
the claims of creditors and may not, in any way, be assigned, alienated or
encumbered except as provided in Article 11.
20.5 The Plan shall be governed, construed and administered in accordance
with the laws of Delaware and the intention of the Company that Incentive Stock
Options granted under the Plan qualify as such under Section 422 of the Code.
18
<PAGE>
MAXIM PHARMACEUTICALS, INC.
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 10, 1997
The undersigned hereby (i) acknowledge(s) receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement dated January 10, 1997, relating to
the Annual Meeting of Stockholders of MAXIM PHARMACEUTICALS, INC. (the
"Company") to be held February 10, 1997 and (ii) appoints Larry G. Stambaugh and
Dale A. Sander, as proxies, with full power of substitution, and authorizes
them, or either of them, to vote all shares of Common Stock of the Company
standing in the name of the undersigned at said meeting or any adjournment
thereof upon the matters specified below and upon such other matters as may be
properly brought before the meeting, conferring discretionary authority upon
such proxies as to such other matters. THIS PROXY, WHEN PROPERLY EXECUTED, WILL
BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER, IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE IN PERSON EVEN THOUGH THEY HAVE
PREVIOUSLY MAILED THIS PROXY CARD.
(Continued on reverse side)
<PAGE>
1. Election of Directors. Nominees: G. Steven Burrill
F. Duwaine Townsen
/ / FOR / / AGAINST / / ABSTAIN
For, except vote withheld from the following nominees(s)
________________________________________
2. Approval of 1993 Long-Term Incentive Plan, as amended to, among other
things, increase the aggregate number of shares authorized for issuance
under the Incentive Plan from a total of 800,000 shares to 1,000,000
shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Ratify the Board of Directors' initial selection of KPMG Peat Marwick LLP
as the Company's independent public accountants for the fiscal year ended
September 30, 1997.
Please check this box if you plan to attend the meeting. / /
Please sign exactly as name appears
hereon. When shares are held by
joint tenants, both should sign.
When signing as executor,
administrator, trustee or
guardian, please give full title as
such. If a corporation, please
sign in full corporate name by
President or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
------------------------------
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Signature(s) Date
Please mark, date, sign and mail this proxy card in the envelope provided. No
postage is required for domestic mailing.
