<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Amarillo Biosciences, 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:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(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):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] 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:
-----------------------------------------------------------------------
(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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<PAGE> 2
AMARILLO BIOSCIENCES, INC.
800 WEST 9TH AVENUE
AMARILLO, TEXAS 79101
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 1999
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Amarillo Biosciences, Inc. (the
"Company") will be held in the Colorado Room of the Ambassador Hotel, 3100 I-40
West, Amarillo, Texas on the 11th day of May, 1999 at 1:00 P.M., local time,
for the following purposes:
1. To elect ten Directors to serve until the next Annual Meeting and
until their respective successors are elected and qualify.
2. To consider and vote upon amendments to the Company's 1996 Employee
Stock Option Plan to increase by 200,000 the number of shares of Common Stock
reserved for issuance thereunder.
3. To consider and vote upon amendments to the Company's Outside Director
and Advisor Stock Option Plan to increase by 200,000 the number of shares of
Common Stock reserved for issuance thereunder.
4. To consider and vote upon amendments to the Company's Articles of
Incorporation to increase by 10,000,000 (to an aggregate of 20,000,000) the
number of shares of the Company's voting common stock, par value $.01,
authorized for issuance; and to authorize a class of 10,000,000 shares of
preferred stock, $.01 par value, to be issuable in one or more series from to
time in the future at the election of the Board of Directors of the Company,
and to have such designations, preferences, limitations and relative rights,
including voting rights, as shall be determined by the Board of Directors.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record as of the close of business on March 25, 1999
are entitled to receive notice of and to vote at the meeting. A list of such
stockholders shall be open to the examination of any stockholder during
ordinary business hours, for a period of ten days prior to the meeting, at the
principal executive offices of the Company, 800 West 9th Avenue, Amarillo,
Texas.
BY ORDER OF THE BOARD OF DIRECTORS
EDWARD L. MORRIS
Secretary
Amarillo, Texas
April 18, 1999
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN
ENVELOPE.
<PAGE> 3
AMARILLO BIOSCIENCES, INC.
800 WEST 9TH AVENUE
AMARILLO, TEXAS 79101
----------
PROXY STATEMENT
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of Amarillo Biosciences, Inc. a Texas corporation (the "Company"),
for use only at the Annual Meeting of Stockholders to be held in the Colorado
Room of the Ambassador Hotel, 3100 I-40 West, Amarillo, Texas on the 11th day
of May, 1999, at 1:00 P.M., local time, and at any adjournments thereof. The
approximate date on which this Proxy Statement and the accompanying Proxy were
first given or sent to security holders was April 18, 1999.
Each Proxy executed and returned by a stockholder may be revoked at any
time thereafter, by written notice to that effect to the Company, attention of
the Secretary, prior to the Annual Meeting, or to the Chairman, or the
Inspectors of Election, at the Annual Meeting, or by the execution and return
of a later-dated proxy, except as to any matter voted upon prior to such
revocation.
The Proxies in the accompanying form will be voted in accordance with the
specifications made and where no specifications are given, such Proxies will be
voted FOR the nominees for election as directors named herein, for proposals
two and three, regarding amendments to the Company's stock option plans, and
for proposal four, regarding amendments to the Company's Articles of
Incorporation. In the discretion of the proxy holders, the Proxies will also be
voted FOR or AGAINST such other matters as may properly come before the
meeting. The management of the Company is not aware that any other matters are
to be presented for action at the meeting. All three proposals will be
determined by a plurality of the votes of the shares of common stock, par value
$.01 per share (the "Common Stock"), present in person or represented by proxy
at the Annual Meeting and entitled to vote. Accordingly, in the case of shares
that are present or represented at the Meeting for quorum purposes, not voting
such shares for a particular proposal, including by withholding authority on
the Proxy, will not operate to prevent the passage of such proposal if it
otherwise receives a plurality of the votes. Votes will be counted manually by
an election judge, who will be the Company's Secretary or an Assistant
Secretary, and who will execute an affidavit certifying the vote as to each
proposal.
VOTING SECURITIES
The Board of Directors has fixed the close of business on March 25, 1999
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Annual Meeting. The issued and outstanding stock
of the Company on March 25, 1999 consisted of 5,414,232 shares of Common Stock,
each entitled to one vote. A quorum of the stockholders is constituted by the
presence, in person or by proxy, of holders of record of Common Stock,
representing a majority of the number of votes entitled to be cast.
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 1, 1999, by each person who is known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock.
1
<PAGE> 4
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- - ---------------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Hayashibara Biochemical Laboratories, Inc............................. 1,232,856 22.8%
Dr. Joseph M. Cummins................................................. 676,814 (1) 12.5%
Mesa Operating Limited Partnership.................................... 315,120 5.8%
Mochida Pharmaceutical Co., Ltd....................................... 300,000 5.5%
</TABLE>
- - ---------------
(1) Includes an aggregate of 337,668 shares of Common Stock held by Joseph
Cummins as trustee under certain trusts for the benefit of his children
and 10,590 shares owned by Dr. Cummins' wife.
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth, as of March 1, 1999, beneficial ownership
of shares of Common Stock of the Company by each director, and by all directors
and executive officers as a group.
<TABLE>
<CAPTION>
TOTAL NUMBER OF PERCENTAGE OF
SHARES BENEFICIALLY COMMON STOCK
NAME OWNED OWNED
- - --------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
Joseph Cummins....................................................... 676,814 (1) 12.5%
Dennis Moore......................................................... 149,616 2.8%
James Cook........................................................... 66,600 (2) 1.2%
Katsuaki Hayashibara................................................. 48,240 1.0%
Stephen Chen......................................................... 9,600 *
Thomas D'Alonzo...................................................... 3,000 *
Brian McLean......................................................... -- --
James Page........................................................... -- --
Total Group (all directors and executive
officers - 8 persons)........................................... 953,870 17.6%
</TABLE>
- - --------------
* Less than 1%
(1) Includes an aggregate of 337,668 shares of Common Stock held by Joseph
Cummins as trustee under certain trusts for the benefit of his children
and 10,590 shares owned by Dr. Cummins' wife.
(2) All of such shares are owned jointly with Mr. Cook's wife.
PROPOSAL ONE
ELECTION OF DIRECTORS
Ten directors will be elected at the meeting to hold office until the next
Annual Meeting of Stockholders and until their respective successors are
elected and qualify. The By-Laws of the Company permit the Board of Directors
to fix the number of directors at no less than one nor more than thirty persons
and the Board of Directors has fixed the number of directors at ten persons.
The Proxies solicited by this proxy statement may not be voted for a greater
number of persons than the number of nominees named. It is intended that these
Proxies will be voted for the following nominees, but the holders of these
Proxies reserve discretion to cast votes for individuals other than the
nominees for director named below in the event of the unavailability of any
such nominee. The Company has no reason to believe that any of the nominees
will become unavailable for election. Set forth below are the
2
<PAGE> 5
names of the nominees, the principal occupation of each, the year in which
first elected a director of the Company and certain other information
concerning each of the nominees.
The name of, and certain information with respect to, all directors,
executive officers and all persons nominated or chosen to become a director are
as follows (all of the following, except Kathleen L. Kelleher, have been
nominated to serve as directors):
<TABLE>
<CAPTION>
DIRECTOR
NAME AND AGE SINCE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS
- - ----------------------------------------------- ---------- ----------------------------------------------------
<S> <C> <C>
Joseph Cummins, DVM, PhD (1)(3), 56............ 1984 Chairman of the Board of the Company since
June 1984. Has served as President of the
Company since December 1994 and as Chief
Financial Officer since October 1998.
Received a PhD degree in microbiology from
the University of Missouri in 1978 and a
doctor of veterinary medicine degree from
Ohio State University in 1966.
Thomas D'Alonzo (1)(2), 55..................... 1997 Joined Pharmaceutical Product Development,
Inc. ("PPD") as President and Chief
Operating Officer and member of the Board
of Directors in October 1996. PPD is listed
on the NASDAQ National Markets
Exchange, and provides research,
development and consulting services in the
life and discovery sciences. Previously
served as President and Chief Executive
Officer of GENVEC, Inc., a gene therapy
biotech company from 1993. Held various
management positions including President
with Glaxo, Inc. from 1983 to 1993. Also
serves on the Board of Directors of
Goodmark, Inc., a publicly traded company
listed on NASDAQ.
Stephen Chen, PhD (2)(4), 49................... 1996 President and Chief Executive Officer of
STC International, Inc., a health care
investment firm, since May 1992. From
August 1989 to May 1992, Director of
Pharmaceutical Research and Development
for the Ciba Consumer Pharmaceuticals
Division of Ciba-Geigy.
James Cook (1)(3)(5), 64....................... 1988 President and Chief Executive Officer of the
First National Bank of Arvada since January
1992 and from April 1987 to December
1991, Executive Vice President of First
National Bank of Amarillo. President and
Director of InterAmerica Bank, Albuquerque,
New Mexico; and Director of Freemont
Bank Corporation, Canon City, Colorado.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR
NAME AND AGE SINCE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS
- - ----------------------------------------------- ---------- ----------------------------------------------------
<S> <C> <C>
Katsuaki Hayashibara (3)(4)(5), 55............. 1994 Named Director of the Overseas Business
Development Division of Hayashibara
Company, Ltd. in January 1997. Served as
Director of Research and Development for
Hayashibara Biochemical Laboratories, Inc.
since 1988.
Brian McLean, MD (3)(5), 39.................... 1996 Partner in a New York venture capital firm.
From 1991 to 1996, staff anesthesiologist
with Tarzana Regional Medical Center.
Received a MBA degree in 1992 and an MD
degree in 1987 from UCLA.
Dennis Moore, DVM (1)(4)(5), 52................ 1986 Doctor of veterinary medicine since 1972
and was in private practice from 1972 to
1995. Management of personal investments
since 1995.
James Page, MD (1)(2)(5), 72................... 1996 Prior to retiring in 1991 as a Vice President
with Adria Laboratories, Inc., held various
upper management level positions with
Carter Wallace, Inc., Merck Sharpe &
Dohme Research Laboratories and Wyeth
Laboratories.
Edward P. Amento, M.D., 53..................... Nominee From 1993 to 1996, Founder, Executive Officer
and Director of Connetics Corporation
(formerly Connective Therapeutics, Inc.), Palo
Alto, California, a company listed on the
NASDAQ National Markets Exchange, and which
focuses on the development of therapeutics for
connective tissue diseases; and since 1996,
Founder, Executive Director, CEO, and a
Director of Molecular Medicine Research
Institute, Mountain View, California.
Richard A. Franco, R.Ph., 57................... Nominee President, CEO and a Director of Trimeris,
Inc., a company listed on the NASDAQ National
Markets Exchange, and engaged in the
development of novel therapeutic agents to
block viral infections; President of the
Richards Group, Ltd.; and Chairman and CEO of
Lipomed, Inc., a company involved in the
application of spectroscopic analysis to
clinical diagnostics.
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C> <C>
Kathleen L. Kelleher, 51....................... N/A Chief Operating Officer and Vice-President
Business Development of the Company since
January, 1999. From 1996 through 1998,
employed as Senior Director of Licensing at G
D Searle, the pharmaceutical division of
Monsanto. From 1989 through 1995, Vice-
President Planning and Development with
Curative Technologies, Inc., a biopharma-
ceutical and medical services company.
</TABLE>
- - --------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Finance Committee.
(4) Member of the Audit Committee.
(5) Member of the Stock Option Plans Administration Committee.
PROPOSAL TWO
APPROVAL OF AMENDMENTS TO
THE COMPANY'S 1996 EMPLOYEE STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders will be asked to
consider and vote upon an amendment to the Company's 1996 Employee Stock Option
Plan (the "Stock Option Plan"). The amendment was adopted by the Company's
Board of Directors on March 11, 1999, subject to shareholder approval.
The purpose of the amendment is to increase the number of shares of the
Company's Common Stock reserved for issuance under the Stock Option Plan from
390,000 to 590,000. This amendment will involve an increase of 200,000 shares
of Common Stock available for distribution.
The purpose of the Stock Option Plan is to closely associate the interests
of the management of the Company and its subsidiaries and affiliates with those
of the shareholders by reinforcing the relationship between participants'
rewards and shareholder gains, provide management with an equity ownership in
the Company commensurate with Company performance, maintain competitive
compensation levels, and provide an incentive to management for continuous
employment with the Company. The Board of Directors believes that this increase
is necessary for the Company to remain competitive in the recruitment,
motivation and retention of its employees, and recommends that the shareholders
approve this proposal.
The shares awarded to employees of the Company under the Stock Option Plan
come from authorized but unissued shares of Common Stock. Without the 200,000
shares that are the subject of this proposal, there are a total of 390,000
shares of the Company's Common Stock authorized for issuance upon the exercise
of options granted under the Stock Option Plan. As of March 31, 1999, no shares
of Common Stock had been purchased upon the exercise of options issued under
the Stock Option Plan and a total of 307,500 shares of Common Stock were
subject to outstanding options that have been granted pursuant to the Stock
Option Plan.
5
<PAGE> 8
Description of the Stock Option Plan
Following is a summary description of the Stock Option Plan:
General. The purpose of the Stock Option Plan is to serve as an incentive
to employees for continuous employment with the Company, to maintain
competitive compensation levels for employees and to more closely align the
interests of shareholders and employees of the Company.
Awards under the Stock Plan are in the form of incentive stock options
("ISOs"), as defined in Section 422 of the Internal Revenue Code of 1986, as
amended. Limited stock appreciation rights ("Limited Rights") relating to such
ISOs may be granted. At present, an aggregate of 390,000 shares of Common Stock
are reserved for issuance upon the exercise of ISOs granted under the Stock
Option Plan. If the amendments described herein are approved, an aggregate of
590,000 shares of Common Stock will be reserved for issuance upon the exercise
of ISOs under the Stock Option Plan.
Administration. The Stock Option Plan is administered by a committee of at
least two directors of the Company (the "Committee"), which has the authority
in its sole discretion to grant ISOs and Limited Rights to eligible employees,
to determine the timing and amount of such awards, to impose limitations,
restrictions and conditions upon such awards and to interpret the Stock Option
Plan and related rules and agreements.
Eligibility. Employees of the Company are eligible to receive grants of
options under the Stock Option Plan. Directors who are not otherwise employed
by the Company are not considered to be "employees" of the Company for purposes
of the Stock Option Plan. As of March 31, 1999, thirteen (13) employees were
eligible to receive grants under the Stock Option Plan.
Options. All ISOs granted to employees who do not possess more than 10% of
the total combined voting power of all classes of stock of the Company will be
exercisable at a price equal to 100% of the fair market value of a share of
Common Stock on the date of grant and will vest at the rate of 20% per year
commencing on the first anniversary of the date of grant, unless vesting is
accelerated by the Stock Option Plans Administration Committee. All ISOs
granted to greater than 10% shareholders will be exercisable at a price equal
to 110% of the fair market value of a share of Common Stock on the date of
grant and will vest at the rate of 25% per year commencing on the first
anniversary of the date of grant, unless vesting is accelerated by the Stock
Option Plans Administration Committee. The aggregate fair market value of the
shares covered by ISOs granted under the Stock Plan that become exercisable by
a holder for the first time in any calendar year is subject to a $100,000
limit. The maximum number of shares of Common Stock with respect to which ISOs
may be granted in any one year to any employee shall not exceed 150,000.
ISOs granted to employees who are not 10% shareholders must be exercised
prior to the expiration of ten years from the date of grant and ISOs granted to
10% shareholders must be exercised prior to the expiration of five years from
the date of grant. ISOs are exercisable only during the holder's employment,
and, in the case of involuntary termination of the employee, for a period of up
to 90 days after the termination of such holder's employment to the extent the
ISOs were exercisable at the date of termination or become exercisable within
the 90 days after termination of employment. However, in the case of the
termination of an optionee's employment by reason of his disability or
retirement, the ISOs held by him may be exercised for a period of 36 months
after such termination to the extent the ISOs were exercisable at the date of
termination. In the case of the death of an optionee, any ISO exercisable on
the date of the employee's death may be exercised by the employee's estate or
beneficiaries if such exercise occurs within the remaining term of the option
but in no event after one
6
<PAGE> 9
year after the employee's death. The Stock Plan provides that ISOs may not be
transferred other than by will or the laws of descent and distribution.
Concurrently with or subsequent to the award of any ISO, the Committee may
award a Limited Right with respect to each ISO permitting the optionee to be
paid the appreciation on the Common Stock in lieu of (but not in addition to)
exercising the ISO. A Limited Right is fully exercisable and must be exercised
immediately preceding or simultaneously with a Change in Control (as defined in
the Stock Option Plan), except that if a Change of Control occurs without
notice to the holder of the Limited Right or an opportunity by the holder of
the Limited Right to exercise it, the Limited Right must be exercised as soon
as practicable after the Change of Control occurs.
Any shares of Common Stock subject to an option which has been terminated
unexercised or expires shall again be available for issuance under the Stock
Option Plan, except that shares subject to an option which are not issued
because the optionee has elected to be paid upon the exercise of a related
Limited Right shall not again be available for issuance under the Stock Option
Plan.
Amendments and Termination. The Committee may amend, alter or terminate
the Stock Option Plan at any time. However, without shareholder approval no
such amendment, alteration or termination may be made that (i) increases the
number of shares of Common Stock issuable under the Stock Option Plan, (ii)
extends the period during which any award may be granted or exercised, or (iii)
extends the term of the Stock Option Plan.
Federal Income Tax Consequences. The grant of an ISO has no immediate
federal income tax consequences to the optionee or the Company. The exercise of
an ISO while the optionee is an employee or within three months after
termination of employment generally has no immediate tax consequences to the
Company or the optionee. If the optionee is subject to the alternative minimum
tax, however, the exercise of an ISO would result in an increase in the
optionee's alternative minimum taxable income equal to the excess of the fair
market value of the shares at the time of exercise over the exercise price. If
an optionee holds the shares acquired pursuant to the exercise of an ISO for
the required holding period, the optionee generally recognizes long-term
capital gain or loss upon a subsequent sale of the shares in the amount of the
difference between the amount realized upon the sale and the exercise price of
the shares. In such a case, the Company is not entitled to a deduction in
connection with the grant or exercise of the ISO or the sale of shares acquired
pursuant to such exercise. If, however, an optionee exercises an ISO more than
three months after termination of employment or disposes of the shares prior to
the expiration of the required holding period, the optionee generally
recognizes ordinary income equal to the excess of the fair market value of the
shares on the date of exercise over the exercise price of the shares, and the
excess generally would be treated as long-term or short-term capital gain. The
required holding period is the longer of two years from the date the option was
granted and one year after the date of issuance of the shares upon the exercise
of the option.
Market Value of Underlying Securities. As of March 30, 1999, the market
value of the Company's Common Stock was $3.00 per share.
Option Grants. The following table sets forth, as of March 31, 1999, the
total number of options granted under the Stock Option Plan to each of the
Company's executive officers, all current executive officers as a group, and
all employees, including all current officers who are not executive officers,
as a group. As of such date, none of such options had been exercised.
7
<PAGE> 10
<TABLE>
<CAPTION>
No. of shares subject
Executive Officers: to options granted
- - ------------------- ------------------
<S> <C>
Joseph M. Cummins,
President & CEO....................................................................................... 14,500
Kathleen Kelleher,
COO & Vice-President, Business Development............................................................ 100,000
All Current Executive Officers as a Group.................................................................. 114,500
All Employees, Including All Current Officers
who are not Executive Officers, as a Group............................................................ 193,000
</TABLE>
- - --------------------
Options outstanding under the Stock Option Plan have expiration dates
ranging from August 8, 2001 to January 4, 2009.
The amendment to the Stock Option Plan, which has been adopted by the
Company's Board of Directors and which will be voted upon by the shareholders
at the annual meeting of the Company, is as follows:
Section 1.05, Aggregate Limitation on Awards, Subparagraph (a): In the
second sentence of this Subparagraph, the number "three hundred ninety thousand
(390,000)" shall be amended to read, "five hundred ninety thousand (590,000)."
The foregoing amendment shall become effective on the date approved by the
holders of a majority of the shares of Common Stock present in person or by
proxy and entitled to vote at the 1999 annual meeting of Shareholders of ABI.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE COMPANY
1996 EMPLOYEE STOCK OPTION PLAN.
PROPOSAL THREE
APPROVAL OF AMENDMENT TO
THE COMPANY'S OUTSIDE DIRECTOR AND ADVISOR STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders will be asked to
consider and vote upon an amendment to the Company's Outside Director and
Advisor Stock Option Plan (the "Directors Plan"). The amendment was adopted by
the Company's Board of Directors on March 11, 1999, subject to shareholder
approval.
The purpose of the amendment is to increase the number of shares of the
Company's Common Stock reserved for issuance under the Directors Plan from
210,000 to 410,000. This amendment will involve an increase of 200,000 shares
of Common Stock available for distribution.
The purpose of the Directors Plan is to closely associate the interests of
the outside directors and scientific advisors of the Company and its
subsidiaries and affiliates with those of the shareholders by reinforcing the
relationship between participants' rewards and shareholder gains, provide
outside directors and scientific advisors with an equity ownership in the
Company commensurate with Company
8
<PAGE> 11
performance, and provide an incentive to outside directors and scientific
advisors for continuous association with the Company. The Board of Directors
believes that this increase is necessary for the Company to remain competitive
in the recruitment, motivation and retention of its outside directors and
scientific advisors and recommends that the shareholders approve this proposal.
The shares of Common Stock of the Company under the Directors Plan come
from authorized but unissued shares of Common Stock. Without the 200,000 shares
that are the subject of this proposal, there are a total of 210,000 shares of
the Company's Common Stock authorized for issuance upon the exercise of options
granted under the Directors Plan. As of March 31, 1999, no shares of Common
Stock had been purchased upon the exercise of options issued under the
Directors Plan and a total of 185,000 shares of Common Stock were subject to
outstanding options that have been granted pursuant to the Directors Plan.
Description of the Directors Plan
Following is a summary description of the Directors Plan:
General. The purpose of the Directors Plan is to provide an incentive to
outside directors and members of the Company's Scientific Advisory Board
("Advisors") for continuous association with the Company and to reinforce the
relationship between participants' rewards and shareholder gains. As of March
31, 1999, approximately seven outside directors and nine Advisors were eligible
to receive grants under the Directors Plan.
Awards under the Directors Plan are in the form of so-called non-qualified
stock options and Limited Rights relating to such options. At present, an
aggregate of 210,000 shares of Common Stock are reserved for issuance upon
exercise of options granted under the Directors Plan. If the amendments
described herein are approved, an aggregate of 410,000 shares of Common Stock
will be reserved for issuance upon the exercise of stock options under the
Directors Plan. Options under the Directors Plan may be granted only to
directors or Advisors who are not officers or employees of the Company.
Administration. The Directors Plan is administered by a Committee
consisting of at least two directors of the Company which has the authority, in
its sole discretion, to interpret the Directors Plan, to adopt, amend and
rescind rules and regulations relating to the Directors Plan, to designate the
directors and Advisors eligible to participate in the Directors Plan, grant
awards provided in the Directors Plan, and to otherwise administer the Plan.
Options. Under the Directors Plan, each Outside Director is automatically
granted an option to purchase 10,000 shares of Common Stock on the date such
person becomes an Outside Director, and each Advisor is automatically granted
an option to purchase 5,000 shares of Common Stock on the date such person
first becomes an Advisor. The Directors Plan provides that the Committee shall
have the authority to designate Directors and Scientific Advisors eligible to
participate in the Directors Plan, to grant awards provided in the Directors
Plan as determined by the Committee, and to impose such restrictions,
limitations and conditions upon such awards as the Committee shall deem
appropriate. All options granted under the Directors Plan will be exercisable
at a price equal to 100% of the fair market value of a share of Common Stock on
the date of grant and will vest at the rate of 20% per year commencing on the
first anniversary of the date of grant, unless vesting is accelerated by the
Stock Option Plans Administration Committee. Options must be exercised prior to
the expiration of ten years from date of grant.
Amendments and Termination. The Committee may without action by the
shareholders amend the Directors Plan or awards thereunder in response to
changes in securities or other applicable laws or
9
<PAGE> 12
to comply with stock exchange rules or requirements. Without shareholder
approval, the Committee may not extend the period during which an option or
Limited Right may be exercised or extend the term of the Directors Plan. The
Company is required to obtain shareholder approval of other amendments,
including any increase in the number of shares of Common Stock issuable under
the Directors Plan, to the extent required by applicable laws or the exchange on
which the Common Stock is listed.
Transferability. Unless otherwise provided in an agreement with the
optionee, options under the Directors Plan may not be transferred other than by
will or the laws of descent and distribution. If the option agreement so
provides, options and Limited Rights may be transferred by the holder to
Permitted Transferees (generally, a member of the optionee's immediate family,
trusts for the benefit of such family members, and family partnerships) so long
as there is no consideration for the transfer. The provisions of the Directors
Plan relating to exercisability of outstanding options after the optionee's
termination of association with the Company by virtue of his death, disability
or involuntary termination and the exercise of Limited Rights are the same as
the provisions of the Stock Option Plan relating thereto.
Federal Income Tax Consequences. The grant of a non-qualified stock option
does not result in taxable income to the holder of the option, or in a
deduction by the Company. The tax consequences are determined generally at the
time the optionee exercises the non-qualified stock option. Upon the exercise
of a non-qualified stock option, the optionee recognizes ordinary income in an
amount equal to the difference between the fair market value of the Company's
Common Stock on the date of exercise and the exercise price of the option. The
Company is entitled to a deduction in an amount equal to the amount that was
includable in the optionee's gross income.
Market Value of Underlying Securities. As of March 30, 1999, the market
value of the Company's Common Stock was $3.00 per share.
Option Grants. The following table sets forth, as of March 31, 1999, the
total number of unexercised options granted under the Directors Plan to all
current directors of the Company who are not executive officers as a group, and
each nominee for election as a director. As of such date, none of such options
had been exercised. Pursuant to the terms of the Plan, options may only be
granted to outside directors and Advisors.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO
NAME OPTIONS GRANTED
- - ---------------------------------------------------------------------- ---------------------
<S> <C>
All current directors who are not executive officers
(seven persons)....................................................... 140,000
</TABLE>
Each newly elected director, not previously a director, will receive a
grant of 10,000 options effective the date of his election as a director.
Options outstanding under the Directors Plan have expiration dates ranging
from August 8, 2006 to September 12, 2008.
The amendment to the Directors Plan, which has been adopted by the
Company's Board of Directors and which will be voted upon by the shareholders
at the annual meeting of the Company, is as follows:
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<PAGE> 13
Section 1.04, Aggregate Limitation on Awards, Subparagraph (a): In the
second sentence of this Subparagraph, the number "two hundred ten thousand
(210,000)" shall be changed to read "four hundred ten thousand (410,000)."
The foregoing amendment shall become effective on the date approved by the
holders of a majority of the shares of Common Stock present in person or by
proxy and entitled to vote at the 1999 annual meeting of shareholders of ABI.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE COMPANY
DIRECTOR AND ADVISOR STOCK OPTION PLAN.
PROPOSAL FOUR
APPROVAL OF AMENDMENTS TO THE COMPANY'S
ARTICLES OF INCORPORATION
At the annual meeting, the Company's shareholders will be asked to
consider and vote upon amendments to the Company's Articles of Incorporation
(the "Articles"). The amendments were approved by the Company's Board of
Directors on April 7, 1999, subject to shareholder approval.
The purpose of the amendments is to increase the number of shares of the
Company's $.01 par value voting common stock by 10,000,000 shares, resulting in
an aggregate of 20,000,000 authorized common shares; and to create a new class
of $.01 par value preferred stock, issuable in series, with dividend rates,
conversion prices, voting rights, redemption prices, and other designations,
preferences, limitations and relative rights to be determined by the Board of
Directors from time to time with respect to each series, prior to issuance.
Increase in Authorized Shares of Common Stock. The Articles currently
authorize the issuance of ten million (10,000,000) shares of capital stock,
$.01 par value. This is the only class of stock currently authorized for
issuance by the Company. The proposal before the shareholders is to amend the
Articles to increase the number of common shares authorized from 10,000,000 to
20,000,000 (an increase of 10,000,000 shares). The reason for the proposed
amendment is that the Board anticipates a need in the future for additional
authorized shares to assist the Company in the raising of additional capital.
No specific purchasers or investors have been identified, and no terms have
been negotiated. The Board believes that the current number of authorized
shares is inadequate, for the following reasons: In view of the conversion by
Hayashibara Biochemical Laboratories, Inc. of its debt into 946,094 shares of
common stock of the Company (described under "Certain Transactions", below),
and in view of the currently proposed increase in the number of shares issuable
under the Company's 1996 Employee Stock Option Plan, and the Company's Outside
Director and Advisor Stock Option Plan (see Proposals Two and Three, above),
and in view of the further reservation of 342,000 shares against the possible
exercise of outstanding warrants and nonqualified stock options, the current
total authorized shares available for future issuance is 2,297,674 shares. The
Board believes this number to be inadequate to satisfy the Company's long-term
requirements.
Creation of New Class of Preferred Stock. The proposed amendments to the
Articles will also create a new class of $.01 par value preferred stock, with
10,000,000 shares authorized for issuance in series. The terms of the preferred
shares ultimately issued, including dividend rates, conversion prices, voting
rights, redemption prices, and other designations, preferences, limitations or
relative rights shall be determined from time to time by the Board of Directors
with respect to each series, prior to issuance. The terms of the securities
cannot be stated or estimated at this time because no offering thereof is
contemplated in the proximate future. No further authorization by shareholders
of the Company will
11
<PAGE> 14
be necessary for issuance of preferred shares of any series. The Board of
Directors of the Company believes the new class of preferred stock is necessary
to provide potential funding vehicles for future investment in the Company by
selected persons or entities.
The amendments to the Articles of Incorporation of the Company, which have
been approved by the Board of Directors of the Company, and which will be voted
upon by the shareholders at the annual meeting of the Company, are as follows:
Article Four of the Articles of Incorporation of the Company: In the first
paragraph under Article Four, "ten million (10,000,000) shares of capital
stock, one cent ($.01) par value", shall be amended to read "twenty million
(20,000,000) shares of capital stock, one cent ($.01) par value."
New Article Five: A new Article Five shall be added to the Articles of
Incorporation of the Company, which Article Five shall read in its entirety as
follows:
"Article Five
The Corporation shall have authority to issue ten million
(10,000,000) shares of preferred stock, one cent ($.01) par
value. The Board of Directors of the Corporation shall have
authority to establish series of the unissued preferred stock
of the Corporation by affixing and determining the
designations, preferences, limitations, and relative rights,
including voting rights, of the shares of any series so
established to the same extent that such designations,
preferences, limitations and relative rights could be stated
if fully set forth in these Articles of Incorporation."
Redesignation of Articles Five, Six and Seven. The existing Articles Five,
Six and Seven shall be redesignated as Articles Six, Seven and Eight,
respectively, to account for the insertion of a new Article Five.
The foregoing amendments shall become effective, subject to approval by
the holders of two-thirds (2/3) of the shares of common stock present in person
or by proxy and entitled to vote at the 1999 annual meeting of shareholders of
the Company, upon filing of the approved amendments with the Office of the
Secretary of State of the State of Texas.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENTS TO THE
COMPANY'S ARTICLES OF INCORPORATION.
COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires directors and officers of the Company and persons who
own more than 10 percent of the Company's Common Stock to file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of changes in ownership of the Common Stock. Directors,
officers and more than 10 percent shareholders are required by the Exchange Act
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the year ended
12
<PAGE> 15
December 31, 1998, all filings applicable to its directors, officers and more
than 10 percent beneficial owners were timely filed.
BOARD OF DIRECTORS
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of the Company, although it
is not involved in day-to-day operating details. Members of the Board are kept
informed of the Company's business by various reports and documents sent to
them as well as by operating and financial reports made at Board and Committee
meetings. Three meetings of the Board of Directors, and six meetings of the
Executive Committee of the Board of Directors, were held during 1998. The only
incumbent directors who attended fewer than 75% of the meetings of the Board of
Directors, and meetings of Committees of the Board on which they served, were
Brian McLean and James Page.
AUDIT, NOMINATING, AND COMPENSATION COMMITTEES
The Company has standing Audit, Nominating, and Compensation Committees of
the Board of Directors.
The Audit Committee consists of Stephen Chen, Katsuaki Hayashibara and
Dennis Moore. The function of the Audit Committee is to serve as an advisory
committee to the Board of Directors of the Company; to review financial
statements and other reports prepared by the Company and any reports or other
communications rendered by the Company's independent certified public accounts
and to coordinate with the accountants any matters raised from time to time by
the accountants; to meet with the representative of the Company's independent
certified public accountants at least annually; and to take under advisement
any matters referred by the accountants. The Audit Committee met one time
during 1998.
The Company did not have a Nominating Committee in 1998 or prior years,
but a Nominating Committee was created by the Board of Directors of the Company
on February 26, 1999. Current members of the Nominating Committee are Joseph M.
Cummins, Katsuaki Hayashibara, and Dennis Moore. The function of the Nominating
Committee is to nominate a slate of directors to stand for election as
Directors of the Company at the Company's annual shareholders meeting. The
nominees set forth in these Proxy Materials for election as directors were
named by the Nominating Committee. The Committee will consider nominees
recommended by security holders for election to the Board of Directors in 2000,
and subsequent years. Security holders shall follow the following procedures in
submitting recommendations for nominees to the Board of Directors: the proposed
nominee's name, address, telephone number, employer, present occupation and
general business or scientific qualifications shall be mailed or faxed to the
Company, in written form. The Nominating Committee will review such
submissions, and if they determine that the Company would benefit by having
such person on its Board of Directors, the Nominating Committee will send to
the nominee a more detailed Questionnaire, which will solicit from said nominee
relevant data required by rules and regulations of the Securities and Exchange
Commission, and other data or information which they deem to be material. Upon
receipt of the completed Questionnaire, the Nominating Committee will determine
whether to include such persons among the nominees recommended by the
Nominating Committee for election as a director at the ensuing annual
shareholders meeting.
The Compensation Committee consists of Stephen Chen, Thomas D'Alonzo, and
James Page. The function of the Compensation Committee is to serve as an
advisory committee to the Board of Directors of the Company regarding all
matters of director, officer and employee compensation, and to report to
the Board of Directors from time to time as they might deem necessary, with any
recommendations for
13
<PAGE> 16
changes in level of compensation or fringe benefits for officers, directors or
employees. The Compensation Committee met one time in 1998.
DIRECTORS' FEES AND COMPENSATION DURING 1998
<TABLE>
<CAPTION>
Cash Compensation Security Grants
----------------------------------- ---------------
NUMBER OF
SECURITIES
MEETING FEES CONSULTING UNDERLYING
NAME (1) FEES (2) OPTIONS
- - ----------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Stephen Chen, Ph.D. $2,000 $45,950 5,000
James Cook 2,000 3,000 5,000
Thomas D'Alonzo 2,000 -- 5,000
Katsuaki Hayashibara 2,000 -- 5,000
Brian McLean, M.D. 2,000 -- 5,000
Dennis Moore, D.V.M. 2,000 4,500 5,000
James Page, M.D. 1,000 1,200 5,000
</TABLE>
- - ----------------
(1) Each director receives a fee of $1,000 for in-person attendance at each
regular directors' meeting, and $250 for participating in a regularly
scheduled directors' meeting by conference telephone, but does not
receive any additional compensation for service on committees of the
Board of Directors. Officers of the Company do not receive additional
compensation for serving as directors.
(2) Each director receives $1,200 per day for employment on special projects
or assignments, prorated for partial days.
EXECUTIVE COMPENSATION
The following table presents the compensation paid by the Company to the
named executive officers for 1996 through 1998.
SUMMARY EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER COMPENSATION
- - ------------------------------------------ ---- -------- ------- ------------------
<S> <C> <C> <C> <C>
Dr. Joseph Cummins, Chairman
of the Board, President and
Chief Executive Officer.............. 1998 $150,000 -- --
1997 120,000 $20,000 $ 12,000 (3)
1996 120,000 -- 252,000 (4)
Charles Hughes, Executive Vice-
President and Chief Financial
Officer (1).......................... 1998 -- -- --
1997 147,435 (2) -- 10,333 (3)
1996 75,000 10,000 157,575 (5)
</TABLE>
- - -------------
(1) Mr. Hughes terminated his employment with the Company on September 8, 1997.
(2) Includes both 1997 salary, and all severance payments.
(3) Represents a Company contribution to the Simplified Employee Pension Plan.
(4) Represents the value of 30,000 shares of Common Stock issued at $5.00 per
share and payment of withholding tax requirements in settlement of
restricted stock grants and a Company contribution of $12,000 to the
Simplified Employee Pension Plan.
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<PAGE> 17
(5) Represents the value of 19,000 shares of Common Stock issued at $5.00 per
share and payment of withholding tax requirements in settlement of
restricted stock grants and a Company contribution of $7,500 to the
Simplified Employee Pension Plan.
OPTION GRANTS IN 1998
The following table sets forth certain information relating to options
granted in 1998 to the executive officers named above, to purchase shares of
Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK % OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED OR BASE
OPTIONS TO EMPLOYEES PRICE EXPIRATION
NAME GRANTED (#) IN 1998 ($/SH) DATE
- - ----------------------------------------- ------------------ ------------------- ------------ ----------------
<S> <C> <C> <C> <C>
John Smith............................... 40,000 67.8% $1.75 (1) 09/13/2008
</TABLE>
- - -------------
(1) The fair market value of the Common Stock on the date of the grant.
AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1998
AND YEAR-END OPTION VALUES
The following table sets forth information for the executive officers
named above, regarding the exercise of options during 1998 and unexercised
options held at the end of 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT OPTIONS AT
ON REALIZED DECEMBER 31, 1998 (#) DECEMBER 31, 1998 ($) (1)
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - ------------------------------- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Joseph Cummins -- -- 5,500 / 9,000 None / None
John Smith -- -- -- / 40,000 None / None
</TABLE>
- - -------------
(1) Calculated based on the closing price of the Common Stock ($1.25) as
reported by NASDAQ on December 31, 1998.
CERTAIN TRANSACTIONS
As of December 31, 1998, the outstanding amount of the Company's
indebtedness to Hayashibara Biochemical Laboratories, Inc. ("HBL") (including
accrued interest) was $2,808,356. Effective April 2, 1999, HBL has converted
said debt to 946,094 shares of the Company's common stock. HBL previously owned
1,232,856 shares, approximately 23% of the Company's Common Stock, and after
such conversion owns approximately 34% of the Company's common stock. In
addition to the Development Agreement, HBL and the Company are parties to
various license and manufacturing and supply agreements pursuant to which the
Company licenses certain technology to or from HBL and HBL supplies
formulations of its IFN[alpha] to the Company.
Pursuant to a Stock Purchase Agreement entered into in September 1987
between the Company and Mesa Operating Limited Partnership ("Mesa"), which owns
315,120 shares of Common Stock, the
15
<PAGE> 18
Company has agreed that for as long as Mesa is a shareholder of the Company, the
Company shall not without the prior written approval of Mesa engage in any
repurchase or redemption of its issued and outstanding shares of Common Stock,
unless such repurchase or redemption is offered, pro rata, to all then existing
shareholders.
On March 25, 1999, the Company entered into a Project Addendum with PPD
Pharmaco, Inc. ("PPD"), a contract research organization. Under the Project
Addendum, PPD will provide substantial services to the Company, related to the
Company's Phase III Sjogren's Syndrome Trials. The estimated total cost of the
Project, consisting of three protocols, is $5,856,258, consisting of fixed
direct costs (basically, fees payable to PPD) in the amount of $2,698,981, and
indirect reimbursable costs ("pass-through payments") in the amount of
$3,157,277. Thomas D'Alonzo, a Director of the Company, is an executive officer
of PPD.
During the years ended December 31, 1998 and 1997, the Company paid $74,000
and $88,000, respectively, for legal services rendered by Morris, Moore, Moss
and Douglass, P.C. Edward Morris, the Secretary of the Company, is a member of
such firm.
Although the Company believes that the foregoing transactions were on
terms no less favorable to the Company than would have been available from
unaffiliated third parties in arm's length transactions, there can be no
assurance that this is the case. All future transactions and loans between the
Company and its officers, directors and 5% shareholders will be on terms no
less favorable to the Company than could be obtained from independent third
parties. There can be no assurance, however, that future transactions or
arrangements between the Company and its affiliates will be advantageous, that
conflicts of interest will not arise with respect thereto or that if conflicts
do arise, that they will be resolved in favor of the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP serve as the Company's independent public accountants. A
representative of that firm is expected to be present at the annual
shareholders' meeting, will have an opportunity to make a statement if he
desires to do so, and is expected to be available to respond to appropriate
questions.
STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the Company's proxy
statement for the 2000 annual meeting of stockholders provided they are
received by the Company no later than December 16, 1999, and are otherwise in
compliance with applicable Securities and Exchange Commission regulations.
GENERAL
So far as is now known, there is no business other than that described
above to be presented for action by the stockholders at the meeting, but it is
intended that the proxies will be voted upon any other matters and proposals
that may legally come before the meeting and any adjournments thereof in
accordance with the discretion of the persons named therein.
16
<PAGE> 19
COST OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. It is
expected that the solicitations will be made primarily by mail, but regular
employees or representatives of the Company may also solicit proxies by
telephone or telegraph and in person, and arrange for brokerage houses and
other custodians, nominees and fiduciaries to send proxy material to the
principals at the expense of the Company.
EDWARD L. MORRIS
Secretary
17
