<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
OSI 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)(4) 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.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
[OSI LETTERHEAD]
February 3, 1999
Dear Stockholders:
It is a pleasure to invite you to the annual meeting of stockholders of OSI
Pharmaceuticals, Inc. (the "Corporation"), which will be held at the Grace
Auditorium of Cold Spring Harbor Laboratory located at One Bungtown Road, Cold
Spring Harbor, New York, on Wednesday, March 24, 1999, at 10:00 a.m. Eastern
Standard Time. Information about the matters to be voted upon at the meeting is
in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.
In addition to the matters to be voted upon at the meeting there will be a
presentation made on recent developments relating to the Corporation. Specific
directions to the Grace Auditorium of Cold Spring Harbor Laboratory may be
obtained by calling or writing to Ms. Kathy Galante, Investor Relations
Coordinator, OSI Pharmaceuticals, Inc., 106 Charles Lindbergh Boulevard,
Uniondale, New York 11553, telephone no. (516) 222-0023.
In order to assure that a quorum is present at the meeting, you are urged
to sign and mail the enclosed proxy card at once, even though you may plan to
attend in person. You may revoke the proxy granted in the proxy card at any time
prior to its being voted by filing with the Secretary of the Corporation either
an instrument of revocation or a duly executed proxy card bearing a later date.
If you attend the meeting, you may elect to revoke the proxy and vote your
shares in person.
The Corporation's Annual Report to Stockholders for the fiscal year ended
September 30, 1998, is being distributed to stockholders with the attached Proxy
Statement.
Sincerely,
/s/ Colin Goddard
COLIN GODDARD, Ph.D.
President and Chief Executive Officer
<PAGE> 3
OSI PHARMACEUTICALS, INC.
106 CHARLES LINDBERGH BOULEVARD
UNIONDALE, NEW YORK 11553
------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------------------------------------------------------------
The annual meeting of stockholders of OSI Pharmaceuticals, Inc. (the
"Corporation"), will be held at the Grace Auditorium of Cold Spring Harbor
Laboratory located at One Bungtown Road, Cold Spring Harbor, New York, on
Wednesday, March 24, 1999, at 10:00 a.m., for the following purposes:
(1) to elect nine directors;
(2) to approve the adoption of an amendment to the Corporation's
Certificate of Incorporation to authorize 5,000,000 shares of preferred
stock, par value $.01 per share, with such designations, preferences,
privileges, and restrictions as may be determined from time to time by the
Corporation's Board of Directors;
(3) to approve the adoption of an amendment to the Corporation's
Certificate of Incorporation to require that all actions taken by
stockholders must be taken at an annual or special meeting and not by
written consent;
(4) to ratify the appointment of KPMG LLP as the independent public
accountants to audit the Corporation's accounts for the fiscal year ending
September 30, 1999; and
(5) to transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on January 25, 1999,
as the record date for determining stockholders entitled to notice of and to
vote at the meeting. A complete list of stockholders entitled to vote at the
meeting will be open to examination by stockholders for any purpose germane to
the meeting during normal business hours at the Corporation's offices at 106
Charles Lindbergh Boulevard, Uniondale, New York 11553.
By Order of the Board of Directors,
/s/ ROBERT L. VAN NOSTRAND
ROBERT L. VAN NOSTRAND
Secretary
February 3, 1999
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT IN THE POSTAGE-PAID ENVELOPE ENCLOSED FOR YOUR
CONVENIENCE. RETURNING A PROXY WILL NOT DEPRIVE YOU OF YOUR RIGHT TO ATTEND THE
ANNUAL MEETING AND VOTE YOUR SHARES IN PERSON.
<PAGE> 4
OSI PHARMACEUTICALS, INC.
106 CHARLES LINDBERGH BOULEVARD
UNIONDALE, NEW YORK 11553
PROXY STATEMENT
This Proxy Statement is furnished to the stockholders of OSI
Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), in connection
with the solicitation of proxies by the Board of Directors for use at the annual
meeting of stockholders of the Corporation to be held on March 24, 1999, and any
adjournment or adjournments thereof (the "Meeting"). A copy of the Notice of
Annual Meeting of Stockholders accompanies this Proxy Statement. It is
anticipated that the mailing of this Proxy Statement will commence on or about
February 3, 1999.
Only holders of record of the Corporation's common stock (the "Common
Stock") at the close of business on January 25, 1999, the record date for the
Meeting, will be entitled to notice of and to vote at the Meeting. On the record
date, the Corporation had issued and outstanding 21,420,333 shares of Common
Stock, which are the only securities of the Corporation entitled to vote at the
Meeting. Each share is entitled to one vote.
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the issued and outstanding shares of Common Stock entitled to vote
at the Meeting will be necessary to constitute a quorum. If a broker that is a
record holder of Common Stock does not return a signed proxy, the shares of
Common Stock represented by such proxy will not be considered present at the
Meeting and will not be counted toward establishing a quorum. If a broker that
is a record holder of Common Stock does return a signed proxy, but is not
authorized to vote on one or more matters (each such matter, a "broker
non-vote"), the shares of Common Stock represented by such proxy will be
considered present at the Meeting for purposes of determining the presence of a
quorum.
Assuming a quorum is present, (i) directors of the Corporation will be
elected by a plurality of the votes cast by stockholders present, in person or
by proxy, and entitled to vote for the election of directors at the Meeting,
(ii) the affirmative vote of a majority of the issued and outstanding Common
Stock will be required for the approval of the two amendments to the
Corporation's Certificate of Incorporation, and (iii) the affirmative vote of a
majority of the votes cast by stockholders present, in person or by proxy, and
entitled to vote at the Meeting will be required for the ratification of the
appointment of the auditors for the current fiscal year. Abstentions and broker
non-votes will have no effect on the outcome of the election of directors nor
the ratification of the appointment of the auditors for the current fiscal year.
With respect to the two amendments to the Corporation's Certificate of
Incorporation, abstentions and broker non-votes will have the same effect as
votes cast "against" the proposals.
Stockholders who execute proxies may revoke them by giving written notice
to the Secretary of the Corporation at any time before such proxies are voted.
Attendance at the Meeting will not have the effect of revoking a proxy unless
the stockholder attending the Meeting shall, in writing, notify the Secretary of
the Corporation of the revocation of the proxy at any time prior to the voting
of the proxy.
The Board of Directors does not know of any matter other than the election
of directors, the approval of the two amendments and the ratification of the
appointment of the auditors for the current fiscal year that is expected to be
presented for consideration at the Meeting. However, if other matters properly
come before the Meeting, the persons named in the accompanying proxy intend to
vote thereon in accordance with their judgment. All proxies received pursuant to
this solicitation will be voted, except as to matters where authority to vote is
specifically withheld, and where a choice is specified as to the proposal, in
accordance with such specification. If no instructions are given, the persons
named in the proxy solicited by the Board of Directors intend to vote (i) FOR
the nominees for election as directors of the Corporation named in this Proxy
Statement under the caption "Election of Directors," (ii) FOR the amendment to
the Corporation's
<PAGE> 5
Certificate of Incorporation to authorize 5,000,000 shares of preferred stock,
(iii) FOR the amendment to the Corporation's Certificate of Incorporation
requiring that all actions by stockholders must be taken at a meeting, and (iv)
FOR the ratification of the appointment of KPMG LLP as the independent public
accountants to audit the Corporation's accounts for the fiscal year ending
September 30, 1999.
The Corporation will bear the cost of the Meeting and the cost of
soliciting proxies, including the cost of mailing the proxy materials. In
addition to solicitation by mail, directors, officers and regular employees of
the Corporation (who will not be specifically compensated for such services) may
solicit proxies by telephone. The Corporation may engage Corporate Investor
Communications, Inc. ("CIC") to assist in the solicitation of proxies from
stockholders. In the event the Corporation does engage CIC, the Corporation will
enter into an agreement with CIC pursuant to which the Corporation will pay CIC
a fee of approximately $7,000 plus reimbursement of reasonable out-of-pocket
expenses.
2
<PAGE> 6
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of December 31, 1998,
regarding the beneficial ownership of Common Stock by (i) all persons known to
the Corporation who own more than 5% of the outstanding shares of Common Stock,
(ii) certain corporate stockholders with whom the Corporation has entered into
strategic collaborations, (iii) each director and nominee for director, (iv)
each named executive officer, and (v) all officers and directors as a group.
Unless otherwise indicated, the persons named in the table below have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
NO. OF PERCENT OF
NAME AND ADDRESS SHARES CLASS(1)
- ---------------- --------- ----------
<S> <C> <C>
BVF, Inc.................................................... 2,128,790(2) 9.94%
One Sansome Street, 39th Floor
San Francisco, California 94104
Amerindo Investment Advisors Inc............................ 2,009,600 9.38%
388 Market Street
San Francisco, California 94111
Hoechst Marion Roussel, Inc................................. 1,590,909(3) 7.26%
10236 Marion Park Drive
Kansas City, Missouri 64137
Novartis Pharma AG.......................................... 909,091 4.24%
CH-4002 Basel
Switzerland
Pfizer Inc.................................................. 587,500 2.74%
235 East 42nd Street
New York, New York 10017
G. Morgan Browne............................................ 134,654(4) *
Arthur M. Bruskin, Ph.D..................................... 135,795(5) *
Walter P. Carney, Ph.D...................................... 91,152(6) *
Gary E. Frashier............................................ 315,525(7) 1.45%
John H. French, II.......................................... 88,254(8) *
Edwin A. Gee, Ph.D.......................................... 226,994(9) 1.05%
Colin Goddard, Ph.D......................................... 189,945(10) *
Daryl K. Granner, M.D....................................... 88,343(11) *
Walter M. Lovenberg, Ph.D................................... 88,339(12) *
Steve M. Peltzman........................................... 244,030(13) 1.13%
Robert L. Van Nostrand...................................... 110,665(14) *
John P. White............................................... 80,004(15) *
All directors and executive officers as a group (12
persons).................................................. 1,793,700(16) 7.77%
</TABLE>
- ---------------
* Represents ownership that does not exceed 1% of the outstanding shares of
the Corporation's Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to stock options and warrants currently exercisable, or exercisable within
60 days are deemed beneficially owned by the person holding such options
and warrants. The percent of the outstanding shares of the Corporation's
Common Stock for any person or group who as of December 31, 1998,
beneficially owned any shares pursuant to options which are exercisable
within 60 days of December 31, 1998, is calculated assuming all such
options have been exercised in full and adding the number of shares subject
to such options to the total number of shares issued and outstanding on
December 31, 1998 for each individual.
3
<PAGE> 7
(2) BVF, Inc. is the general partner of BVF Partners, L.P. BVF Partners, L.P.
is the general partner of Biotechnology Value Fund, L.P. The shares are
owned by one or more of these entities.
(3) Includes 500,000 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding warrants.
(4) Includes 87,504 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options. Also
includes 400 shares owned by Mr. Browne's wife, as to which Mr. Browne
disclaims beneficial ownership. Also includes 21,750 shares owned by Cold
Spring Harbor Laboratory, of which Mr. Browne is an executive officer. Mr.
Browne disclaims beneficial ownership of the shares owned by Cold Spring
Harbor Laboratory.
(5) Includes 135,182 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(6) Includes 90,207 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(7) Includes 300,006 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(8) Includes 68,754 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(9) Consists entirely of shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(10) Includes 185,925 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of options.
(11) Consists entirely of shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(12) Includes 83,339 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(13) Includes 226,351 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(14) Includes 108,319 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(15) Includes 50,004 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
(16) Includes 1,650,928 shares that may be acquired at or within 60 days of
December 31, 1998 pursuant to the exercise of outstanding options.
4
<PAGE> 8
ELECTION OF DIRECTORS
At the Meeting, nine directors are to be elected, each to hold office
(subject to the Corporation's By-Laws) until the next annual meeting of
stockholders and until his respective successor has been elected and qualified.
The nominees for election to the Board of Directors are named in the table
below. If any nominee listed in the table below should become unavailable for
any reason, which management does not anticipate, the proxy will be voted for
any substitute nominee selected by management prior to or at the Meeting, or for
a motion to reduce the membership of the Board to the number of nominees
available. As of the last annual meeting of stockholders, a vacancy existed on
the Board. On October 1, 1998, the Board of Directors elected Dr. Colin Goddard
to fill this vacancy. Therefore, the proxies solicited hereby will be voted for
nine nominees. The information concerning the nominees has been furnished by
them to the Corporation.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE CORPORATION
---- --- --------------------------------
<S> <C> <C>
Gary E. Frashier.................................... 62 Chairman of the Board and Director
Edwin A. Gee, Ph.D.................................. 78 Chairman, Emeritus of the Board
and Director
Colin Goddard, Ph.D................................. 39 Chief Executive Officer, President
and Director
G. Morgan Browne.................................... 63 Director
John H. French, II.................................. 67 Director
Daryl K. Granner, M.D............................... 62 Director
Walter M. Lovenberg, Ph.D........................... 64 Director
Steve M. Peltzman................................... 52 Director
John P. White....................................... 52 Director
</TABLE>
BIOGRAPHICAL INFORMATION
GARY E. FRASHIER has been Chairman of the Board since December 1997. Mr.
Frashier was Chief Executive Officer of the Corporation from March 1990 until
October 1998. From March 1994 to December 1997, Mr. Frashier also served as Vice
Chairman of the Board, and was President of the Corporation from March 1990 to
March 1994. Mr. Frashier currently serves as a trustee of the Corporation's
401(K) Savings and Investment Plan. From April 1987 to February 1990, he served
as President, Chief Executive Officer and a director of Genex Corporation, a
biotechnology company which specializes in protein engineering. From 1984 to
March 1987, he was Chairman, President and Chief Executive Officer of
Continental Water Systems Corporation, a corporation engaged in the manufacture
and marketing of equipment to produce ultrapure water, which was purchased from
Millipore Corporation in a management buy-out organized by Mr. Frashier. Mr.
Frashier served as an Executive Vice President of Millipore Corporation and
President of Waters Associates, Inc., Millipore Corporation's liquid
chromatography subsidiary, from 1980 to 1983. He presently serves as a director
of Anaderm Research Corp. and Helicon Therapeutics, Inc. Mr. Frashier was
elected to the Board of Directors of the Corporation in March 1990.
EDWIN A. GEE, PH.D., a director of the Corporation since 1985, served as
President, Chairman of the Board and Chief Executive Officer of International
Paper Company from 1978 until his retirement in April 1985. Prior to 1978, Dr.
Gee was a Senior Vice President, member of the Executive Committee and director
of E.I. du Pont de Nemours and Company. Dr. Gee serves as a member of the Board
of Directors of Biocryst Pharmaceuticals, Inc. Dr. Gee is also Director,
Emeritus of the Salomon Brothers Fund, Inc., the Salomon Brothers Investors
Fund, Inc. and the Salomon Brothers Capital Fund, Inc. Dr. Gee served as an
executive officer of the Corporation, holding the position of Chairman of the
Board of the Corporation from April 1987 until March 1990. From March 1990 to
December 1997, Dr. Gee was Chairman of the Board, but no longer served as an
officer of the Corporation. As of December 1997, Dr. Gee was elected Chairman,
Emeritus of the Board of the Corporation.
5
<PAGE> 9
COLIN GODDARD, PH.D., was appointed President and Chief Executive Officer
of the Corporation in October 1998, having previously served with the
Corporation as President from 1997 to 1998, Executive Vice President and Chief
Operating Officer from 1996 to 1997, Vice President Research Operations from
1993 to 1996, Director, Drug Discovery from 1992 to 1993 and Program Manager,
Drug Discovery from 1991 to 1992. Dr. Goddard joined the Corporation as a
scientist in January 1989. In the early 1990's, Dr. Goddard was responsible for
the development of the Corporation's industry leading high throughput screening
operation and was instrumental in the development of the Corporation's fully
integrated drug discovery strategy. Before joining the Corporation, Dr. Goddard
spent four years at the National Cancer Institute in Bethesda, Maryland
conducting research on the src oncogene. Dr. Goddard trained as a cancer
pharmacologist in Birmingham, U.K. receiving his Ph.D. from the University of
Aston, Birmingham, U.K. in 1985.
G. MORGAN BROWNE has been Administrative Director of Cold Spring Harbor
Laboratory since June 1985. Prior to 1985, Mr. Browne provided management
services to a series of scientifically based companies. He is presently a
director of Harris & Harris Group, Inc. and the New York Biotechnology
Association, as well as Treasurer and a director of the Long Island Research
Institute. Mr. Browne currently serves as a trustee of the Corporation's 401(K)
Savings and Investment Plan. Mr. Browne became a director of the Corporation in
March 1993.
JOHN H. FRENCH, II, has been Vice Chairman of Southern Pacific Petroleum
N.L. (U.S.) for the past seven years. He was Chairman of the Board of Research
and Science Investors, Inc., a New York venture capital concern, from January
1990 to February 1992 and President from 1960 to February 1992. Mr. French
currently serves as a trustee of the Corporation's 401(K) Savings and Investment
Plan. Mr. French became a director of the Corporation in July 1988.
DARYL K. GRANNER, M.D., is a professor and director of Vanderbilt Diabetes
Center, Vanderbilt University. Dr. Granner served as Chairman of Molecular
Physiology/Biophysics and of Internal Medicine at Vanderbilt University from
July 1984 to August 1998. From 1970 to 1984, he was a faculty member at the
University of Iowa, where he directed the Division of Endocrinology and Diabetes
and the Iowa Diabetes Center. He directs the Vanderbilt Diabetes Center and is
an acknowledged authority in the mechanism of insulin action and the
pathophysiology of diabetes mellitus. He has served on numerous national
advisory panels. Dr. Granner has been a director of the Corporation since
September 1996. Prior to that, Dr. Granner was an independent consultant
providing consulting services to the Corporation since 1992.
WALTER M. LOVENBERG, PH.D., was an Executive Vice President and member of
the Board of Directors of Marion Merrell Dow Inc. from 1989 through 1993. Dr.
Lovenberg served as President of the Merrell Dow Research Institute from 1989 to
1993 and Vice President from 1986 through 1989. Dr. Lovenberg has received the
Fulbright-Hayes Senior Scholar Award, the Public Health Service Superior Service
Award and the Third International Award for Research on Adult Diseases. Dr.
Lovenberg currently serves as a member of the Board of Directors of Xenometrix,
Inc., Cytoclonal Pharmaceutics, Inc., and Inflazyme, Inc. He has served on the
Scientific Advisory Board of Amylin Pharmaceuticals, Inc. since 1996. Dr.
Lovenberg has served as a director and Chief Executive Officer of Helicon
Therapeutics, Inc. since July 1997. Dr. Lovenberg has served as a consultant to
the Corporation since October 1993. Dr. Lovenberg became a director of the
Corporation in March 1994.
STEVE M. PELTZMAN has been President and Chief Executive Officer and a
director of NuGene Technologies, Inc. since September 1997. Prior to that, Mr.
Peltzman held various executive officer positions with the Corporation from
October 1991 to July 1997, most recently as President from March 1994 to July
1997. Mr. Peltzman's association with the Corporation began in October 1991 upon
consummation of the acquisition by the Corporation of the cancer business of
Applied bioTechnology, Inc. where he served as President and Chief Executive
Officer of Applied bioTechnology, Inc. from June 1984 to October 1991. From 1986
to 1990, Mr. Peltzman was also President of a partnership between Applied
bioTechnology, Inc. and E.I. du Pont de Nemours and Company, which focused on
the development of products relating to the prevention, diagnosis and treatment
of human cancer. Mr. Peltzman presently serves as a director of LifeScience
Economics, Inc. Mr. Peltzman became a director of the Corporation in March 1992.
6
<PAGE> 10
JOHN P. WHITE is a partner of Cooper & Dunham LLP, a New York City law firm
specializing in patent, trademark and related intellectual property matters, and
has been associated with the firm since 1977. Mr. White is a member of numerous
professional organizations, both legal and scientific, and has written and
lectured extensively on the subject of legal protection for biotechnology. Mr.
White has been a director of the Corporation since May 1985.
GENERAL INFORMATION
The Corporation's directors are elected at the annual meeting of
stockholders and hold office (subject to the By-Laws of the Corporation) until
the next succeeding annual meeting of stockholders and until their successors
are elected and qualified. With the exception of Dr. Colin Goddard, each of the
nominees named above, was elected as a director of the Corporation at the annual
meeting of stockholders held on March 25, 1998. Dr. Goddard was elected to the
Board by the Board of Directors effective October 1, 1998.
The Board of Directors held five meetings during the last fiscal year. None
of the directors attended fewer than 75% of the number of meetings of the Board
of Directors or any committee of which he is a member held during the period in
which he was a director or a committee member, as applicable.
The Board of Directors has an Executive Committee, which currently consists
of Dr. Gee and Messrs. Frashier, French and White. The Executive Committee held
three meetings during the last fiscal year. The principal function of the
Executive Committee is to exercise all the power and authority of the Board of
Directors between meetings of the Board of Directors.
The Board of Directors has a Nominating Committee, which currently consists
of Dr. Gee and Messrs. Frashier, French and White. The Nominating Committee held
one meeting during the last fiscal year. The principal functions of the
Nominating Committee are to review and select candidates for nomination to the
Board of Directors. In fulfilling this responsibility, the Nominating Committee
considers recommendations received from stockholders and other qualified
sources. Stockholders may submit recommendations with regard to nominees for
election to the Board of Directors by notice in writing, received by the
Secretary of the Corporation at least 45 days prior to the date on which the
Corporation first mailed its proxy materials for the prior year's annual meeting
of stockholders, or, if the Corporation did not have an annual meeting of
stockholders in the prior year, 90 days prior to the date of the annual meeting.
Each notice of nomination must set forth (i) the name, age, business address
and, if known, residence address of each nominee, (ii) the principal occupation
or employment of each such nominee, and (iii) the number of shares of stock of
the Corporation which are beneficially owned by each such nominee.
The Compensation Committee of the Board of Directors currently consists of
Drs. Gee and Lovenberg and Messrs. French and White. The Compensation Committee
held four meetings during the last fiscal year. The Compensation Committee is
authorized subject to the Certificate of Incorporation and By-Laws of the
Corporation and the Delaware General Corporation Law, to exercise all power and
authority of the Board of Directors with respect to the compensation of
employees of the Corporation. It also addresses a variety of organizational
matters with respect to the Corporation and its employees. The Compensation
Committee also administers the Corporation's stock option plans.
The Audit Committee of the Board of Directors currently consists of Drs.
Gee and Granner and Messrs. Browne and Peltzman. The Audit Committee held one
meeting during the last fiscal year. The Audit Committee is responsible for
reviewing the adequacy of the structure of the Corporation's financial
organization and the implementation of its financial and accounting policies. In
addition, the Audit Committee reviews the results of the audit performed by the
Corporation's outside auditors before the Annual Report to Stockholders is
published.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS NAMED ABOVE.
7
<PAGE> 11
EXECUTIVE OFFICERS OF THE CORPORATION
The names and ages of the executive officers of the Corporation and their
positions with the Corporation are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE CORPORATION
---- --- --------------------------------
<S> <C> <C>
Colin Goddard, Ph.D. ..................... 39 Chief Executive Officer since October 1998;
President since August 1997; Executive Vice
President and Chief Operating Officer since
September 1996; Vice President, Research Operations
since April 1995; Vice President, Research
Operations, Pharmaceutical Division since December
1993; Director, Pharmaceutical Operations since
February 1993; Director, Drug Discovery since May
1992; Program Manager, Drug Discovery since April
1991; Staff Scientist since 1989
Arthur M. Bruskin, Ph.D. ................. 43 Executive Vice President, Drug Discovery since April
1998; Senior Vice President, Drug Discovery since
October 1996; Vice President, Drug Discovery since
April 1995; Director, Drug Discovery since July
1994; Director, Cancer Research since April 1992;
Director, Molecular Genetics since October 1991
Maurizio Denaro, M.D. .................... 47 Executive Vice President, Drug Development since
January 1999
Robert L. Van Nostrand.................... 41 Vice President and Chief Financial Officer since
December 1996; Vice President, Finance and
Administration since May 1990; Treasurer since March
1992; Secretary since March 1995; Controller and
Chief Accounting Officer from September 1986 to May
1990
Eric W. Collington, Ph.D. ................ 53 Vice President, Chemistry since September 1996
Walter P. Carney, Ph.D. .................. 48 Vice President, Diagnostics since June 1997; Vice
President and General Manager, Diagnostics and
Proprietary Drug Development Program since June
1995; Vice President, Pre-clinical Proprietary
Program since 1994; Director of Research and
Development since 1991
Geoffrey Cooper, Ph.D. ................... 50 Vice President, Business Development since June
1998.
</TABLE>
Set forth below is a biographical description of each executive officer
based on information supplied by such executive officer.
COLIN GODDARD, PH.D., see "Election of Directors."
ARTHUR M. BRUSKIN, PH.D., was appointed Executive Vice President, Drug
Discovery of the Corporation in April 1998, having previously served as Senior
Vice President, Drug Discovery from October 1996 to April 1998. Dr. Bruskin
joined Applied bioTechnology, Inc., a wholly-owned subsidiary of the
Corporation, in July 1987 and became Director, Cancer Research of the
Corporation following the acquisition of Applied bioTechnology, Inc. by the
Corporation, in 1991. Prior to joining the Corporation, Dr. Bruskin spent three
years as a post doctoral fellow in the lab of Nobel Laureate Dr. Michael Bishop
at the University of California, San Francisco, studying the molecular
mechanisms of the activation of oncogenes. Dr. Bruskin obtained his Ph.D. in
molecular biology at Indiana University. Dr. Bruskin has served as Vice
President of Anaderm Research Corp. since October 1996 and Vice President of
Helicon Therapeutics, Inc. since July 1997.
MAURIZIO DENARO, M.D., joined the Corporation in January 1999 as Executive
Vice President, Drug Development. Prior to his employment by the Corporation,
Dr. Denaro was employed at Amylin
8
<PAGE> 12
Pharmaceuticals, Inc. as Executive Vice President and Chief Technical Officer
from 1997 to 1998 and Senior Vice President Research from 1996 to 1997. From
1994 to 1995, Dr. Denaro was Vice President and Center Director at Hoechst
Marion Roussel, Inc. From 1992 to 1994, Dr. Denaro was Vice President and
Director at Marion Merrell Dow Inc. Dr. Denaro held various other positions at
Marion Merrell Dow Inc. from 1985 to 1992. Dr. Denaro received his medical
degree from Bologna University Medical School, and conducted post-graduate work
in molecular studies on the mechanism of the different steps of protein
synthesis by the analysis of the actions of vegetable toxins at Bologna
University Medical School. Dr. Denaro currently serves as a director of Amylin
Pharmaceuticals, Inc.
ROBERT L. VAN NOSTRAND was appointed Vice President and Chief Financial
Officer of the Corporation in December 1996, having previously served as Vice
President, Finance and Administration. Mr. Van Nostrand has served as Treasurer
and Secretary of the Corporation since May 1990. Mr. Van Nostrand joined the
Corporation as Controller and Chief Accounting Officer in August 1986. Prior to
joining the Corporation, Mr. Van Nostrand was in a managerial position with the
accounting firm of Touche Ross & Co. Mr. Van Nostrand holds a Bachelor of
Science in Accounting from Long Island University, and he completed advanced
management studies at the Wharton School. He is a Certified Public Accountant.
ERIC W. COLLINGTON, PH.D., was elected as a corporate officer of the
Corporation in December 1998, prior to which he was appointed Vice President,
Chemistry of the Corporation in September 1996 when the Corporation acquired
Aston Molecules Ltd., a wholly-owned subsidiary of the Corporation, in July
1996. Prior to joining the Corporation, Dr. Collington was Research Director of
Aston Molecules Ltd. from July 1996 to September 1996. Prior to that Dr.
Collington held various positions with Glaxo Research and Development Ltd. from
February 1983 to September 1995, including Head of Medicinal Chemistry and
Deputy Head of CNS Diseases Research. He has been associated with a number of
drugs that have reached the market place. Trained as an organic chemist, Dr.
Collington received his Ph.D. from Keele University, England, followed by two
years' post-doctoral work in the United States.
WALTER P. CARNEY, PH.D., was appointed Vice President, Diagnostics of the
Corporation in July 1997. Since 1991, Dr. Carney has held various management
positions within the Diagnostics Division and is currently the President of
Oncogene Science Diagnostics, Inc. ("OSDI"), a wholly-owned subsidiary of the
Corporation. Over the past eight years at the Corporation and OSDI, Dr. Carney
has been awarded over 20 U.S., European and Japanese patents related to the
HER-2/neu and ras oncogenes. Prior to joining the Corporation, Dr. Carney spent
ten years at E.I. du Pont de Nemours and Company, where he held various
management positions in the Medical Products/Diagnostics Division. Dr. Carney
received his Ph.D. in Medical Microbiology from Jefferson Medical College,
Philadelphia, Pennsylvania in 1978. Dr. Carney spent four years as a Harvard
Fellow in the Department of Infectious Diseases at the Mass General Hospital,
Boston, Massachusetts where he trained extensively in virology.
GEOFFREY COOPER, PH.D., was appointed Vice President, Business Development
of the Corporation in June 1998. Prior to joining the Corporation, Dr. Cooper
was Senior Licensing Officer at Tanabe Seiyaku Co., Ltd. from February 1996 to
June 1998, Assistant Vice President, Worldwide Licensing at Wyeth-Ayerst
Laboratories from January 1995 to January 1996, and Senior Director, Licensing
at American Cyanamud Pharmaceuticals from October 1989 to January 1995. After
graduating in pharmacy, Dr. Cooper received his Ph.D. in pharmaceutical
chemistry from the University of Aston, Birmingham, U.K., in 1974 and conducted
post-doctoral research in metabolic disease at University College, Cardiff, U.K.
before commencing his career in the pharmaceutical industry.
9
<PAGE> 13
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table sets forth a summary of all compensation paid or
accrued by the Corporation for services rendered for the last three completed
fiscal years to its chief executive officer and its four other most highly
compensated executive officers (the "named executive officers") during fiscal
year 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
OTHER SECURITIES ALL OTHER
FISCAL ANNUAL UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION OPTIONS(#) SATION(B)
--------------------------- ------ -------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Gary E. Frashier(c)................ 1998 $288,885 $100,000 -- 75,000 $ 5,000
Chairman and Director 1997 280,000 110,000 -- 100,000 4,750
1996 274,969 100,000 -- 100,000 4,750
Colin Goddard, Ph.D.(d)............ 1998 $191,269 $ 70,000 -- 140,000 $ 5,302
Chief Executive Officer, 1997 168,154 60,000 -- 50,000 5,045
President and Director 1996 129,646 50,000 -- 90,000 3,889
Arthur M. Bruskin, Ph.D............ 1998 $163,511 $ 45,000 -- 80,000 $ 4,790
Executive Vice President, 1997 151,158 50,000 -- 40,000 4,535
Drug Discovery 1996 115,596 40,000 -- 75,000 3,375
Robert L. Van Nostrand............. 1998 $138,381 $ 38,000 -- 15,000 $ 4,151
Vice President and Chief 1997 133,144 45,000 -- 55,000 4,098
Financial Officer 1996 116,548 35,000 -- 35,000 3,496
Walter P. Carney, Ph.D............. 1998 $141,644 $ 35,000 -- 15,000 $ 3,279
Vice President, Diagnostics 1997 126,577 40,000 -- 35,000 2,846
1996 120,471 30,000 -- 25,000 2,902
</TABLE>
- ---------------
(a) Bonuses are paid subsequent to the end of the fiscal year.
(b) Represents the Corporation's contributions to the executive officers'
"401(K) Savings and Investment Plan."
(c) Mr. Frashier served as Chief Executive Officer through fiscal year 1998.
(d) Dr. Goddard was promoted to the position of Chief Executive Officer
effective October 1998.
10
<PAGE> 14
STOCK OPTION GRANTS
The following table sets forth grants of stock options made during the
Corporation's fiscal year ended September 30, 1998, to each of the named
executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
---------------------------------------------------- STOCK PRICE
% OF TOTAL APPRECIATION FOR
OPTIONS GRANTED OPTION TERM
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION -------------------
NAME GRANTED(A) IN FISCAL YEAR PRICE DATE 5% 10%
---- ---------- --------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary E. Frashier................ 75,000 8.93% $5.250 06/17/08 $247,625 $627,535
Colin Goddard, Ph.D. ........... 40,000 4.76% 5.250 06/17/08 132,067 334,685
100,000 11.90% 3.250 09/22/08 204,389 517,966
Arthur M. Bruskin, Ph.D. ....... 30,000 3.57% 5.250 06/17/08 99,050 251,014
50,000 5.95% 3.250 09/22/08 102,195 258,983
Robert L. Van Nostrand.......... 15,000 1.79% 5.250 06/17/08 49,525 125,507
Walter P. Carney, Ph.D. ........ 15,000 1.79% 5.250 06/17/08 49,525 125,507
</TABLE>
- ---------------
(a) All options vest one-third one year from the date of grant and the remainder
pro rata monthly over the ensuing 24 months.
EXERCISE OF OPTIONS
The following table sets forth (i) certain information relating to options
exercised by the named executive officers during the fiscal year ended September
30, 1998, and (ii) the total number of unexercised options at September 30,
1998, and the total value of unexercised in-the-money options at September 30,
1998, for the named executive officers:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
AGGREGATED
OPTION EXERCISES NUMBER OF VALUE OF UNEXERCISED
DURING FISCAL 1998 SECURITIES UNDERLYING IN-THE-MONEY
----------------------- UNEXERCISED OPTIONS OPTIONS AT
SHARES AT FISCAL YEAR END(#) FISCAL YEAR END(A)
ACQUIRED VALUE ---------------------- ---------------------
NAME ON EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
---- ----------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gary E. Frashier.............. -- -- 272,226 152,774 $57,810 --
Colin Goddard, Ph.D. ......... -- -- 164,400 193,600 -- --
Arthur M. Bruskin, Ph.D. ..... -- -- 117,962 122,977 -- --
Robert L. Van Nostrand........ -- -- 95,824 49,176 -- --
Walter P. Carney, Ph.D. ...... -- -- 81,462 40,688 -- --
</TABLE>
- ---------------
(a) Based on the closing sale price of the Corporation's Common Stock of $2.906
per share, as reported on the Nasdaq National Market on September 30, 1998,
less the exercise price.
COMPENSATION OF DIRECTORS
Monetary Compensation
Drs. Gee, Granner and Lovenberg and Messrs. Browne, French, Frashier,
Peltzman and White (being the non-employee directors of the Corporation) are the
only current directors compensated for attendance at Board of Directors'
meetings. Each director is paid a $1,500 retainer per month and $1,500 for each
meeting of
11
<PAGE> 15
the Board of Directors he attends. In addition, each of these persons receives
$250 for each meeting of a committee of the Board he attends that is held on the
same day as a meeting of the Board of Directors, and $500 for each meeting of a
committee of the Board he attends that is held on a date other than a date upon
which a meeting of the Board of Directors is held. Mr. Frashier's compensation
began in January 1999.
Formula Option Grants
Pursuant to the Corporation's 1993 Incentive and Non-Qualified Stock Option
Plan, as amended (the "1993 Plan"), any director who is not also an employee of
the Corporation or the designee of a third party who is entitled to
representation on the Board of Directors (a "Non-Employee Director") is entitled
to an automatic, formula-based grant of non-qualified stock options ("NSOs").
The 1997 Incentive and Non-Qualified Stock Option Plan (the "1997 Plan")
continues the automatic, formula-based grants of NSOs to Non-Employee Directors
established pursuant to the Corporation's 1993 Plan. Each Non-Employee Director
receives an NSO to purchase 50,000 shares of Common Stock upon the Non-Employee
Director's initial election to the Board at a meeting of stockholders (the
"Initial Options"). Each Initial Option vests one-half immediately upon grant,
and one-half upon the Non-Employee Director's reelection to the Board for a
second consecutive term.
In addition to the Initial Options, the 1997 Plan provides for the annual
grant of NSOs (the "Annual Options") to Non-Employee Directors at such times and
in such amounts as set forth in the table below, provided that no Annual Options
may be issued following the termination of the 1997 Plan, which is March 18,
2007. Each Annual Option vests one-third upon the first anniversary of its date
of grant (the "Grant Date"), with the remainder vesting ratably on a monthly
basis over the succeeding 24 months:
SCHEDULE OF ANNUAL OPTION AWARDS
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING
ANNUAL
OPTION AWARDS TIMING OF AWARDS
- ----------------- ----------------
<C> <S>
20,000 On the date of the Non-Employee Director's reelection to a
third one-year term;
20,000 On the date of the Non-Employee Director's reelection to a
fourth one-year term;
15,000 On the date of the Non-Employee Director's reelection to a
fifth one-year term;
15,000 On the date of the Non-Employee Director's reelection to a
sixth one-year term;
10,000 On the later of the date of the annual meeting of
stockholders in 1999 or the date of the Non-Employee
Director's reelection to a seventh one-year term;
10,000 On the later of the date of the annual meeting of
stockholders in 2000 or the date of the Non-Employee
Director's reelection to an eighth one-year term; and
10,000 On the later of the date of the annual meeting of
stockholders in 2001 or the date of the Non-Employee
Director's reelection to a ninth one-year term.
</TABLE>
The exercise price of both the Initial Options and Annual Options
(collectively, the "Formula Options") is equal to 100% of the fair market value
of the Common Stock on the Grant Date. The Formula Options expire on the tenth
anniversary of their respective Grant Dates, subject to the sooner expiration
upon the occurrence of certain events set forth in the 1997 Plan which are
generally applicable to all options granted under the 1997 Plan. Benefits
attributable to future grants of Annual Options are not determinable since such
benefits depend, in part, upon the price of the Corporation's Common Stock on
the date of grant.
On March 25, 1998, each of Drs. Gee and Lovenberg and Messrs. Browne,
French and White received a formula award of options covering 15,000 shares, and
Mr. Peltzman received a formula award of options covering 50,000 shares.
12
<PAGE> 16
Stock Purchase Plan
Pursuant to the Corporation's Directors' Stock Purchase Plan (the "DSPP"),
adopted as of March 25, 1996, all Non-Employee Directors may elect to receive up
to 50% of their monthly retainer fees and up to 50% of attendance fees earned
during any month in the form of shares of Common Stock. The Corporation reserved
100,000 shares of Common Stock for issuance under the DSPP.
Other Payments and Option Awards
Dr. Gee was paid $51,000 by the Corporation in the last fiscal year for
services rendered as a general business consultant. Dr. Gee also received an
award of options on December 11, 1997 covering 100,000 shares at an exercise
price of $6.375. Dr. Lovenberg was paid $40,000 by the Corporation in the last
fiscal year for services rendered as a general business consultant. Dr. Granner
was paid $39,333 by the Corporation in the last fiscal year for services
rendered as a scientific consultant. Dr. Granner also received an award of
options on June 18, 1998 covering 10,000 shares at an exercise price of $5.25.
Mr. Peltzman was paid $2,000 by the Corporation in the last fiscal year for
services rendered as a general business consultant.
EMPLOYMENT AGREEMENT
Colin Goddard, Ph.D.
The Corporation entered into an employment agreement, dated as of April 30,
1998, with Colin Goddard, Ph.D. The agreement has a fixed term of three years
but provides for automatic extensions for additional one-year terms. The
agreement provides for a minimum base salary of $192,000, plus such other
amounts, if any, as the Board may from time to time determine. In addition, Dr.
Goddard is eligible for incentive bonus compensation and is entitled to receive
other customary fringe benefits generally available to executive employees of
the Corporation. The agreement prohibits Dr. Goddard from competing with or
becoming engaged in the same business as the Corporation during the term of
employment plus two years thereafter. The agreement also provides Dr. Goddard
with severance benefits in the event the Corporation terminates employment other
than for cause or due to Dr. Goddard's death or disability. The Corporation will
be obligated to continue Dr. Goddard's salary for the twelve months immediately
following the effective date of termination, unless such termination is for
cause or due to death or disability. In the event Dr. Goddard terminates his
employment due to a change in control of the Corporation or in the event his
title, responsibilities or salary are reduced, Dr. Goddard will be entitled to
full payment of his salary for the remaining term of his agreement. However,
such payment will not be less than nine months pay and all outstanding stock
options granted to him will become fully vested.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Corporation's fiscal year ended September 30, 1998, the
Compensation Committee consisted of Drs. Gee and Lovenberg and Messrs. French
and White. Dr. Gee served as an executive officer of the Corporation from 1987
through 1990.
During the Corporation's fiscal year 1998, Mr. Frashier served as Chief
Executive Officer of the Corporation and as a director and member of the
Compensation Committee of Helicon Therapeutics, Inc. ("Helicon"), as well as a
member of the Board of Directors of NuGene Technologies, Inc. ("NuGene"), which
performs functions of a compensation committee. As of January 1999, Mr. Frashier
no longer served as a director of NuGene. During the Corporation's fiscal year
1998 Dr. Lovenberg, Chief Executive Officer of Helicon, served as a director and
member of the Compensation Committee of the Corporation. Please refer to
"Certain Relationships and Related Transactions" for a description regarding the
Corporation's relationship with Helicon and NuGene.
13
<PAGE> 17
REPORT OF THE COMPENSATION COMMITTEE
To: The Board of Directors
It is a part of the responsibility of the Corporation's Compensation
Committee (the "Committee") to exercise the power and authority of the Board of
Directors with respect to the compensation of employees and to administer the
Corporation's stock option plans. Consequently it is the Committee's
responsibility to review compensation levels of members of management and to
evaluate the performance of management.
In evaluating the reasonableness of compensation paid to the Corporation's
executive officers, the Committee takes into account how compensation compares
to compensation paid by competing companies as well as the Corporation's
performance. In making this determination, the Committee has relied in part on
independent surveys of compensation of management of companies in the
biotechnology and pharmaceutical areas.
It is the Corporation's policy that the compensation of executive officers
be based, in substantial part, on the Corporation's performance, as well as the
individual contribution of each executive officer. As a result, much of an
executive officer's compensation is "at risk" in the form of bonus and stock
option compensation with target levels established by the Committee for each
position relative to total cash compensation. For purposes of compensation
decisions, the Committee measured the Corporation's performance and that of each
executive officer in fiscal year 1998 against goals established by the Committee
under the Corporation's Annual Business Plan prior to the start of the fiscal
year. Based on individual performance and contributions, the Committee awarded
the respective executive officers discretionary bonuses that fell within ranges
established by the Committee prior to the start of the fiscal year. With respect
to grants of stock options to executive officers, the Committee also took into
account the responsibility of each officer and the existing stock options
already held by such person.
Effective October 1, 1998, the beginning of the Corporation's 1999 fiscal
year, Colin Goddard, Ph.D., President of the Corporation, was elected as the
Corporation's Chief Executive Officer. Gary Frashier was the Corporation's Chief
Executive Officer through the end of fiscal year 1998 and has been Chairman of
the Board of Directors since December 1997 and will continue in that role. The
base salary of Gary Frashier for fiscal year 1998 was based principally on his
rights under an employment agreement with the Corporation dated February 1990
(the "Employment Agreement"). The Employment Agreement established a minimum
base annual salary based on negotiations between the Board of Directors and Mr.
Frashier in connection with his joining the Corporation in February 1990. This
amount has been increased each year by the Compensation Committee to keep pace
with salaries being paid to other chief executive officers of similar companies
and in recognition of the Corporation's performance. Mr. Frashier's base annual
salary generally becomes effective on April 1st of each year, for the ensuing
twelve-month period.
Under the Employment Agreement, Mr. Frashier is eligible for incentive
bonus compensation in an amount up to 50% of his base salary. Because the
Corporation is in the development stage, the use of traditional performance
standards (such as profit levels and return on equity) are not appropriate in
the evaluation of Mr. Frashier's performance. For fiscal year 1998, the
Committee awarded Mr. Frashier a bonus of $100,000 in recognition of achievement
of the following objectives: the completion of Phase I clinical trials for
cancer under the collaborative program with Pfizer Inc. ("Pfizer"), as well as
the nomination of two additional compounds to IND-track pre-clinical development
phase by Pfizer; the extension of the program in cosmeceuticals with Anaderm
Research Corp.; the issuance of a patent covering the use of small molecule
drugs for the regulation of gene transcription; the licensing of the
Corporation's gene transcription patent estate to Aurora Biosciences Corp.; the
establishment of a collaboration with Vanderbilt University Diabetes Center; the
establishment of a collaboration with Fujirebio, Inc. in cancer diagnostics; the
further develop-
14
<PAGE> 18
ment of cancer diagnostic tests for HER-2/neu and complex PSA; and the
successful transition of the Chief Executive Officer position to Dr. Goddard.
Edwin A. Gee, Ph.D., Chairman
John H. French, II
Walter M. Lovenberg, Ph.D.
John P. White
15
<PAGE> 19
STOCK PRICE PERFORMANCE GRAPH
In previous years, the Corporation has presented graphs depicting five-year
comparisons of the cumulative total return on its Common Stock with the
cumulative total return for each of the Standard & Poor's 500 Stock Index (the
"S&P 500 Index") and the Dow Jones Industry Group Biotechnology Index (the "Dow
Jones Peer Index"). Starting with fiscal year 1998, the Corporation will include
in its proxy statements stock price performance graphs comparing the five-year
cumulative total return on its Common Stock with that for the Nasdaq National
Market Index (the "Nasdaq Market Index") and the Nasdaq Pharmaceutical Index
(the "Nasdaq Peer Index"). The Corporation believes that the Nasdaq Market Index
is a more relevant context (as compared to the S&P 500 Index) within which to
measure the relative performance of the Corporation's stock price. The
Corporation believes that the Nasdaq Pharmaceutical Index is more representative
of the Corporation's peers and provides a more balanced depiction of the
Corporation's performance in relation to its peers. Many of the Corporation's
peers are using the Nasdaq Market Index and the Nasdaq Pharmaceutical Index. The
following graph compares the five-year cumulative total return of the
Corporation's Common Stock with the cumulative total return of the Dow Jones
Peer Index, the S&P 500 Index, the Nasdaq Peer Index, and the Nasdaq Market
Index based on an assumed investment of $100 on October 1, 1993, in each case
assuming reinvestment of all dividends.
[OSI PHARMACEUTICAL PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
DOW
'OSI JONES NASDAQ NASDAQ
PHARMACEUTICALS, PEER S&P 500 PEER MARKET
INC.' INDEX INDEX INDEX INDEX
<S> <C> <C> <C> <C> <C>
1993 100.00 100.00 100.00 100.00 100.00
1994 81.25 106.43 103.69 86.90 105.82
1995 134.38 147.10 134.53 128.33 128.48
1996 221.88 201.99 161.89 154.68 150.00
1997 271.88 221.03 227.38 172.59 203.88
1998 72.66 248.85 247.94 149.39 211.88
</TABLE>
16
<PAGE> 20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. John P. White, a director of the Corporation, is a partner of Cooper &
Dunham LLP, a New York law firm specializing in patent, trademark and related
intellectual property matters. Cooper & Dunham LLP regularly provides legal
services to the Corporation. Professional fees paid or accrued by the
Corporation to Cooper & Dunham LLP in the fiscal year ended September 30, 1998
did not exceed 5% of such law firm's gross revenues for its last full fiscal
year.
Mr. Steve M. Peltzman, a director of the Corporation, is President and
Chief Executive Officer and serves as a director of NuGene, a privately held
biotechnology company seeking to develop products based on its cell targeting
and drug delivery technologies. During the fiscal year ended September 30, 1998,
the Corporation invested $25,000 in NuGene. As of September 30, 1998, the
Corporation was fully reserved for its investment in NuGene.
Dr. Walter M. Lovenberg, a director of the Corporation, is Chief Executive
Officer and a director of Helicon. Mr. G. Morgan Browne, a director of the
Corporation, is Administrative Director of Cold Spring Harbor Laboratory
("CSHL"). In July 1997, the Corporation, CSHL and Hoffman-La Roche Inc.("Roche")
formed Helicon. In exchange for approximately 28% of Helicon's outstanding
capital stock, the Corporation agreed to perform for Helicon $1 million of
molecular screening services within one year and granted to Helicon a
nonexclusive license with respect to certain screening technology. CSHL
contributed a royalty-free license to commercialize certain technology relating
to genes associated with long-term memory in exchange for a portion of Helicon's
outstanding capital stock. Roche contributed cash for a portion of Helicon's
outstanding capital stock. Certain individuals associated with CSHL hold the
remaining outstanding capital stock of Helicon. The parties entered into various
collaborative research and license agreements pursuant to which they will
jointly pursue the discovery, development and commercialization of novel drugs
for the treatment of long-term memory disorders and other central nervous system
dysfunctions. The Corporation's net investment in Helicon at September 30, 1998
was $200,000.
The Corporation and Hoechst Marion Roussel, Inc. ("HMRI") are parties to an
Amended Collaborative Research and License Agreement effective as of April 1,
1997, for joint research and development activities, which focus specifically on
the Corporation's expertise in live-cell assay technology. The Corporation
conducts the lead seeking (screening) phase of the drug discovery process
against a variety of targets in various disease areas. HMRI is responsible for
all lead optimization and development activities. The Corporation has identified
several compounds, which HMRI is optimizing for further development. The most
advanced of these compounds are in lead optimization for individual targets in
atherosclerosis and arthritis. Under the agreement, HMRI has been granted
certain exclusive, worldwide licenses by the Corporation, and has the right to
negotiate with the Corporation within specified parameters to obtain certain
other exclusive, worldwide licenses with respect to products resulting from
joint research programs. In consideration for their licenses, HMRI will pay
royalties to the Corporation on sales of such products. In addition, effective
as of January 1, 1997, the Company and HMRI were parties to a Collaborative
Research and License Agreement to develop orally active, small molecule inducers
of erythropoietin gene expression for the treatment of anemia due to chronic
renal failure and anemia associated with chemotherapy for AIDS and cancer. This
collaboration identified active lead compounds that were advanced to a
pre-clinical development stage. This research effort, however, did not achieve
sufficient data to warrant further development. Consequently, in October 1998,
this program was terminated. In fiscal year 1998, the Corporation earned an
aggregate of $4,301,263 in research funding under the agreements. HMRI holds
1,090,909 shares of Common Stock of the Corporation, and a warrant to purchase
an additional 500,000 shares of the Corporation's Common Stock for $5.50 per
share. This warrant expires in December 1999.
17
<PAGE> 21
PROPOSED AMENDMENTS TO THE CORPORATION'S
CERTIFICATE OF INCORPORATION
The Board of Directors unanimously approved, and recommends stockholder
approval of, two proposals to amend the Corporation's Certificate of
Incorporation (collectively, the "Proposed Amendments").
Specifically, the Proposed Amendments would (1) authorize the future
issuance of up to 5,000,000 shares of preferred stock on such terms and at such
times as the Board of Directors may determine (the "Preferred Stock Amendment"),
and (2) permit stockholder actions to be taken only at a meeting of
stockholders, rather than by consent in lieu of a meeting (the "Stockholder
Meeting Amendment").
As more fully discussed below, the Board of Directors believes that the
Proposed Amendments are in the best interest of the Corporation's stockholders.
GENERAL
In light of the Corporation's continued progress in its discovery programs,
the Board of Directors believes that the Corporation's Common Stock is
significantly undervalued at this time. As a result, the Corporation may be
vulnerable to the threat of an uninvited, non-negotiated takeover attempt. The
Board believes that such hostile takeover attempts are generally costly to all
participants and do not generally maximize stockholder value. Accordingly, while
the Board does not intend to foreclose or discourage reasonable merger
proposals, stockholder values can be enhanced by encouraging would-be acquirers
to forego hostile public tender offers and negotiate with the Board terms which
are fair to all stockholders.
Although a tender offer or other takeover attempt may be made at a price
substantially above the then current market price of the Corporation's common
stock, such offers frequently are made for less than all of the outstanding
stock of the target corporation and, accordingly, may present stockholders with
the alternatives of partially liquidating their investment at a time that may be
disadvantageous or retaining an investment in an enterprise under substantially
different management with objectives which may not be identical with those of
the remaining stockholders. Such concentration of control could also deprive the
remaining stockholders of the benefits of listing on the Nasdaq National Market
and even of public reporting under the Securities Exchange Act of 1934, as
amended.
At the meeting of the Board of Directors on January 6, 1999 (the "January
Meeting"), the Board considered several possible approaches to protecting the
Corporation and its stockholders from the foregoing threats. The Board concluded
that, for the Corporation, the best combination of defenses against abusive and
coercive takeover tactics in use today would consist of (1) a Shareholders
Rights Plan (the "Rights Plan"), (2) By-Law amendments to permit only the Board
of Directors to call a special meeting of stockholders (the "Special Meeting
Amendment") and to require advance notice of stockholder proposals and director
nominations (the "Advance Notice Amendment"), (3) the Stockholder Meeting
Amendment and (4) the Preferred Stock Amendment. At the January Meeting, the
Board unanimously approved the adoption of a Shareholders Rights Plan, the
Special Meeting Amendment and the Advance Notice Amendment. The adoption of the
Rights Plan and the Special Meeting and Advance Notice Amendments require no
further action by the stockholders and, accordingly, are being, or have been,
implemented. In addition, at the January Meeting, the Board unanimously approved
the Stockholder Meeting Amendment and the Preferred Stock Amendment. These
Proposed Amendments to the Corporation's Certificate of Incorporation require
the approval of the stockholders. Consequently, the Board of Directors
unanimously approved the recommendation of these proposals for consideration by
the stockholders at the Annual Meeting.
None of the actions taken by the Board at the January Meeting are in
response to any specific proposal or inquiry to acquire control of the
Corporation, and the Board of Directors is not aware of any such contemplated
takeover activity.
While the Board of Directors believes that the Shareholders Rights Plan,
the Special Meeting Amendment and the Advance Notice Amendment will offer a
first line of defense against abusive and coercive takeover tactics, the Board
does not believe that these measures and applicable statutory provisions under
Delaware law will necessarily provide adequate protection for minority
stockholders without adoption of the
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Stockholder Meeting Amendment and the Preferred Stock Amendment. While the
validity of shareholder rights plans have generally been upheld by the Delaware
courts and the Corporation's Shareholders Rights Plan is typical of rights plans
commonly in use, it is possible that a court could rule the Rights Plan invalid
or order the redemption of the rights thereunder or that the Board of Directors
might elect to redeem the rights under certain circumstances. In those
situations an acquirer could acquire a majority of the outstanding shares of the
Corporation and then attempt to engage in actions or transactions that might be
detrimental to the interest of minority stockholders. The Rights Plan, and as
discussed below the Delaware statutory provisions, may not offer adequate
protection against stockholders' receiving inadequate consideration in a
second-stage transaction effected by a person who has gained control of the
Corporation, against stockholders' being coerced into selling their shares to
avoid being left as minority stockholders, or against changes in the Board of
Directors, Certificate of Incorporation or By-Laws being effected by a person
who has acquired a majority of the outstanding shares without a meeting of all
the stockholders being held.
While the Proposed Amendments, individually and collectively, particularly
when taken together with the Company's Rights Plan and the By-Law amendments
adopted by the Board of Directors, give added protection to the Corporation's
stockholders, they may also have the effect of making more difficult or
discouraging a tender offer or proxy fight, even if such occurrence may be
favorable to the interests of some or all of the Corporation's stockholders. By
having the effect of discouraging takeover attempts, the Proposed Amendments
also could have the incidental effect of inhibiting (1) certain changes in
management (some or all of the members of which might be replaced in the course
of a change of control) and (2) the temporary fluctuations in the market price
of the Corporation's Common Stock that might accompany actual or rumored
takeover attempts.
The Board of Directors recognizes that a takeover might in some
circumstances be beneficial to some or all of the Corporation's stockholders,
but, nevertheless, believes that the stockholders as a whole will benefit from
the adoption of the Proposed Amendments. The Board further believes that it is
preferable to act on the Proposed Amendments when they can be considered
carefully rather than during an unsolicited bid for control.
Under Delaware law, each of the Proposed Amendments to the Corporation's
Certificate of Incorporation requires the affirmative vote of the holders of a
majority of the Corporation's issued and outstanding shares of Common Stock
entitled to vote at the Meeting. If the stockholders approve either or both of
the Proposed Amendments, the Corporation will file an amendment to the
Certificate of Incorporation that reflects the amendments which are approved
with the Secretary of State of the State of Delaware. Each of the Proposed
Amendments approved by the stockholders would become effective regardless of
whether the other Proposed Amendment is adopted.
The full text of each Proposed Amendment for which approval is sought is
set forth in Appendices A and B to this Proxy Statement, and the following
summaries of such Proposed Amendments are qualified in their entirety by
reference to such Appendices A and B. Stockholders are urged to read carefully
the following description and discussion of the Proposed Amendments and
Appendices A and B to this Proxy Statement before voting on the Proposed
Amendments.
EXISTING PROTECTIVE MEASURES AND STATUTORY PROVISIONS
In addition to the Proposed Amendments, the Corporation's Rights Plan, the
Special Meeting Amendment, the Advance Notice Amendment and certain provisions
of Delaware law may have the effect of making more difficult and discouraging,
to varying degrees and in various circumstances, an attempt to acquire control
of the Corporation without approval of the Board of Directors, even if such
acquisition of control may be favorable to the interests of some or all of the
Corporation's stockholders.
Under Section 1.2 of Article I of the By-Laws, stockholders are not
permitted to call special meetings of stockholders. Consequently, a party
interested in attempting to effect certain takeover actions by calling a special
meeting to approve such actions is prohibited from doing so. Section 2.9 of the
By-Laws requires advance notice of stockholder nominations for the election of
directors and stockholder proposals, thereby
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giving the Corporation advance notice of, and an opportunity to consider and
respond to, a takeover attempted through the election of new directors or
approval of stockholder resolutions.
The Rights Plan is designed to deter tender offers and other non-negotiated
takeover attempts that employ abusive and coercive tactics, or that are
otherwise not in the best interests of stockholders, by subjecting the acquiring
person to an unacceptable level of dilution of its stock ownership interest if
such ownership equals or exceeds 17.5% of the Corporation's outstanding Common
Stock. The intended effect of the Rights Plan is to encourage prospective
acquirers to bring their proposals to the Board of Directors so that those
proposals may be evaluated and, if appropriate, negotiated by the Board of
Directors, which must exercise its judgment in this area subject to the
fiduciary standards imposed by Delaware law in such situations. The Board may
allow a proposal to proceed by redeeming the rights.
In conjunction with adopting the Rights Plan, the Corporation declared a
dividend distribution of a right to purchase a common stock and subordinated
debenture unit (a "Unit") for each share of the Corporation's common stock as of
February 15, 1999. A Unit consists of one one-tenth of a share of common stock
and a subordinated debenture in the principal amount equal to nine-tenths of the
current market value of a share of common stock at the time of exercise. The
right becomes exercisable upon the acquisition by a person, entity or group of
17.5% or more of the Corporation's outstanding common stock or ten days after
the announcement by a person, entity or group of the commencement of, or the
intention to commence, a tender for at least 17.5% of the Corporation's
outstanding common stock.
Certain provisions of Delaware law may also have the effect of making more
difficult or discouraging attempts to acquire control of the Corporation without
the approval of the Board of Directors. In particular, Section 203 of the
Delaware General Corporation Law ("Section 203") prohibits certain "Business
Combinations" between a publicly-held Delaware corporation, such as the
Corporation, and an "Interested Stockholder". The provision is in effect for a
period of three years after the date the Interested Stockholder becomes an
Interested Stockholder, unless (a) prior to the time the Interested Stockholder
became an Interested Stockholder of a target corporation, either the proposed
Business Combination or the proposed acquisition of stock which would make such
Interested Stockholder an Interested Stockholder was approved by that
corporation's board of directors; (b) in the same transaction in which the
Interested Stockholder becomes an Interested Stockholder, the Interested
Stockholder acquires at least 85% of the voting stock of that corporation
(excluding shares owned by directors who are also officers and certain shares
held in employee stock plans); or (c) the Interested Stockholder obtains
approval of the Business Combination by the target corporation's board of
directors and the holders of 66 2/3% of the target corporation's outstanding
voting stock other than shares of voting stock held by the Interested
Stockholder. For purposes of Section 203, an "Interested Stockholder" is any
person that (a) beneficially owns 15% or more of the outstanding voting stock of
the target corporation or (b) is an affiliate or associate of the target
corporation and at any time within the preceding three-year period was the
beneficial owner of 15% or more of the outstanding voting stock of the target
corporation, together, in each case, with the affiliates and associates of such
person.
The "Business Combinations" to which Section 203 applies include: (a) any
merger or consolidation of a corporation or any of its majority-owned
subsidiaries with an Interested Stockholder or any other corporation if the
merger or consolidation is caused by the Interested Stockholder; (b) certain
sales, leases, exchanges, mortgages, pledges, transfers or other dispositions of
assets of the target corporation or any of its majority-owned subsidiaries
having an aggregate market value equal to 10% or more of either the aggregate
market value of all the assets of the corporation and its subsidiaries or of all
the outstanding stock of the corporation; (c) any issuance or transfer of stock
of the corporation or any of its majority-owned subsidiaries to the Interested
Stockholder with certain exceptions; (d) any transaction involving the target
corporation or any of its majority-owned subsidiaries that has the effect of
increasing the Interested Stockholder's percentage ownership interest in that
corporation's capital stock, except certain immaterial changes; and (e) most
loans or other financial benefits provided by or through the target corporation
or any of its majority-owned subsidiaries to the Interested Stockholder.
As in the case of the Rights Plan, Section 203 encourages persons
interested in acquiring a corporation to negotiate in advance with the board of
directors because the special stockholder voting requirement imposed
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by Section 203 can be avoided if such person, prior to acquiring 15% of a
corporation's voting stock, obtains the approval of the target corporation's
board of directors for such acquisition or for the proposed Business
Combination. In addition, Section 203 provides limited protection against the
potential inequities inherent in "two-tier" business combination transactions.
Under Section 203, any merger, consolidation or similar transaction following a
partial tender offer that has not been approved by a majority of the board of
directors requires approval by the holders of at least 66 2/3% of the remaining
shares of stock (unless the acquirer obtains 85% or more of the target
corporation's voting stock (other than excepted shares as discussed above) in
such partial tender offer). Furthermore, Section 203 tends to discourage the
accumulation of large blocks of stock by third parties which may be disruptive
to the stability of a corporation's relationships with its employees, customers
and major lenders.
POTENTIAL DISADVANTAGES OF THE PROPOSED AMENDMENTS
The overall effect of the Proposed Amendments, together with the existing
By-Law provisions and statutory protections, may be to make more difficult the
accomplishment of mergers and similar transactions by a person acquiring a
substantial stock interest in the Corporation and to delay the removal of the
Corporation's directors and management, regardless of whether any such
transaction or removal was desired by the holders of a majority of the
outstanding shares of the Corporation's Common Stock or that might be
advantageous to the Corporation and its stockholders. In addition, a tender
offer at a premium over market price, which might extend to all public shares or
might otherwise be favorable to public stockholders, could be discouraged by the
Proposed Amendments. The Board of Directors and management may be made more
secure in the retention of their positions and may be able to resist changes
which the stockholders might otherwise have the power to impose.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has concluded that the potential benefits of the
Proposed Amendments outweigh any possible disadvantages thereof and recommends
approval of the Proposed Amendments described in more detail in this Proxy
Statement.
PROPOSED PREFERRED STOCK AMENDMENT TO
THE CERTIFICATE OF INCORPORATION
On January 6, 1999, the Board of Directors adopted a resolution to amend
the Corporation's Certificate of Incorporation (the "Preferred Stock Amendment")
by authorizing 5,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). If the Preferred Stock Amendment is approved by the
stockholders, the Board of Directors would be authorized to fix the
designations, preferences and rights of the Preferred Stock and issue shares of
Preferred Stock without additional stockholder approval, subject to any
applicable requirements of the Nasdaq National Market. The Corporation is not
presently engaged in any negotiations concerning the issuance of any shares of
Preferred Stock, nor are there any present arrangements or understandings
concerning the issuance of such shares. The proposed Preferred Stock Amendment,
which would amend Article IV of the Corporation's Certificate of Incorporation,
can be found in its entirety at Appendix A.
EFFECT OF THE PREFERRED STOCK AMENDMENT
The new shares of Preferred Stock could be issued by the Board of Directors
as a class or in one or more series. The Board of Directors would be empowered
to fix by resolution or resolutions the designations, preferences and relative
rights, qualifications and limitations of the new shares of Preferred Stock,
including, among other things: (a) the number of shares in, and designation of,
each series, if any; (b) the dividend rate, conditions and preferences over the
Common Stock, if any, and the dates upon which dividends would be declared and
paid; (c) whether, and to what extent, the holders thereof would have voting
rights in addition to those prescribed by statute; (d) whether, and upon what
terms, the shares of Preferred Stock would be convertible into, or exchangeable
for, other securities; (e) whether, and upon what terms, the shares would be
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redeemable; (f) whether a sinking fund would be provided for the redemption of
the shares and, if so, the terms and conditions thereof; and (g) the preference,
if any, to which the shares would be entitled in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation.
ADVANTAGES AND PURPOSE OF THE PREFERRED STOCK AMENDMENT
The Board of Directors believes that the Preferred Stock Amendment would
(a) provide the Corporation with an important anti-takeover defensive tool, as
discussed in this Proxy Statement, and (b) provide the Corporation with
flexibility of action for possible future acquisitions, financing transactions
and other corporate purposes.
In addition, the Preferred Stock Amendment would enable the Board of
Directors to amend the Shareholders Rights Plan to provide for the issuance of
Preferred Stock rather than the Units as presently provided. Most rights plans
in existence today provide for the rights to be exercisable initially for
preferred stock.
DISADVANTAGES AND POTENTIAL ANTI-TAKEOVER IMPACT
Should the Preferred Stock Amendment be approved, the Board of Directors
would be authorized to issue shares of Preferred Stock that could, depending on
the terms of such series, make more difficult or discourage an attempt to obtain
control of the Corporation by means of a merger, tender offer, proxy contest or
other means. When, in the judgment of the Board of Directors, the action would
be in the best interests of the stockholders and the Corporation, such shares
could be used to create voting or other impediments to a takeover attempt or to
discourage persons seeking to gain control of the Corporation. Preferred shares
could be privately placed with purchasers friendly to the Board of Directors (a
so-called "white knight" or "white squire"), the favorable vote of which could
be necessary to approve any merger, sale of assets or other extraordinary
corporate transaction. In addition, the Board of Directors could authorize
holders of a series of Preferred Stock to vote either separately as a class or
with the holders of the Corporation's Common Stock, on any merger, sale or
exchange of assets by the Corporation or any other extraordinary corporate
transaction. The authorization of shares of Preferred Stock, without the actual
issuance thereof, could have the effect of discouraging unsolicited takeover
attempts. The issuance of new shares of Preferred Stock also could be used to
dilute the stock ownership of a person or entity seeking to obtain control of
the Corporation should the Board of Directors consider the action of such entity
or person not to be in the best interests of the stockholders and the
Corporation.
Until such time as the Board of Directors authorizes the issuance and
determines the rights of any series of Preferred Stock, it is not possible to
state the precise disadvantages that issuance of such series might have on the
holders of the Corporation's Common Stock. Such disadvantages, however, might
include: (i) a reduction in the amount available for the payment of dividends on
the Common Stock if dividends on the Preferred Stock are in arrears; (ii)
dilution of the voting power of the Common Stock to the extent the Preferred
Stock has voting rights; and (iii) limitations on the rights of the holders of
Common Stock to share in the Corporation's assets upon liquidation until
satisfaction of any liquidation preference granted to the Preferred Stock.
Further, the authorization of Preferred Stock may operate to the disadvantage of
certain stockholders by reducing the likelihood of a hostile takeover of the
Corporation which could result in a change in the composition of the Board of
Directors. The Board of Directors may issue Preferred Stock with greater rights
over the Common Stock, including the power to elect a majority of the Board of
Directors. If the holders of Preferred Stock possessed the right to elect a
majority of the Board, then such holders would be able to control the management
of the Corporation.
THE BOARD OF DIRECTORS BELIEVES THAT THE POTENTIAL BENEFITS OF THE
PREFERRED STOCK AMENDMENT OUTWEIGH THE POSSIBLE DISADVANTAGES THEREOF AND
RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PREFERRED STOCK AMENDMENT AS
DESCRIBED ABOVE AND SET FORTH AT APPENDIX A.
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PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
PROHIBIT STOCKHOLDER ACTION WITHOUT A MEETING
On January 6, 1999, the Corporation's Board of Directors adopted, subject
to stockholder approval, an amendment to Article VII of the Corporation's
Certificate of Incorporation, as set forth at Appendix B, to prohibit
stockholder action without a meeting (the "Stockholder Meeting Amendment").
Under current Delaware law and the Corporation's Certificate of
Incorporation any action required or permitted to be taken by the Corporation's
stockholders may be taken without a meeting or notice to all stockholders and
without a stockholder vote if a written consent setting forth the action to be
taken is signed by the holders of shares of outstanding stock having the
requisite number of votes that would be necessary to authorize such action if it
were taken at a meeting of stockholders. The Corporation's current Certificate
of Incorporation provides that prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent must be given to
those stockholders who have not consented in writing. The Corporation's By-Laws
do not restrict stockholder action by written consent. The Stockholder Meeting
Amendment would prohibit actions by written consent of the stockholders.
Stockholders should note that the Corporation's By-Laws were recently
amended to allow special meetings of stockholders to be called only by a
majority vote of the Board of Directors. As a result, approval of the proposed
Stockholder Meeting Amendment would require that stockholder action be taken
only at an annual or special meeting of stockholders called by the Board of
Directors.
PURPOSE OF THE STOCKHOLDER MEETING AMENDMENT
Proposals for stockholder action typically involve important issues to all
stockholders relating to the Corporation and its future. Consequently, the Board
of Directors believes that such proposals should be considered at a special or
annual meeting of stockholders, following notice to all stockholders, where the
issues can be discussed by all interested persons. The Stockholder Meeting
Amendment is designed to achieve this result by requiring all actions that
require the approval of stockholders to be considered at a meeting of
stockholders. The notice provisions currently provided in the Section 1.3 of the
Corporation's By-Laws and the proposed Stockholder Meeting Amendment provide the
Board with the opportunity to inform stockholders of a proposed action, together
with the Board's recommendation or position with respect to a proposed
stockholder action, thereby enabling stockholders to better determine whether
they desire to attend the stockholder meeting or grant a proxy to the Board of
Directors in connection with the disposition of any such business.
ADVANTAGES AND DISADVANTAGES
The Board of Directors approved the Stockholder Meeting Amendment because
the Directors believe it is in the best interest of all stockholders to be
informed of any action to be taken by the stockholders, including approval of a
merger or sale of assets. Transactions such as mergers or sales of assets that
have not been negotiated or approved by the Board could seriously disrupt the
business and management of the Corporation and result in terms which may be less
favorable to the stockholders as a whole than would be available in transactions
approved by the Board. Board-approved transactions may be carefully planned and
undertaken at an opportune time in order to obtain maximum value for all of the
Corporation's stockholders.
Conversely, the Stockholder Meeting Amendment may be disadvantageous to
stockholders because it may limit their ability to amend the By-Laws or remove
directors pursuant to a written consent. Any such holder or group of holders
would have to wait until the annual meeting of stockholders to seek approval for
such action. The amendment may also be perceived to be disadvantageous because
it could discourage future attempts to acquire control of the Corporation even
though a majority of stockholders may believe it is in their best interests or
that they might receive a substantial premium.
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POTENTIAL ANTI-TAKEOVER IMPACT
The proposed Stockholder Meeting Amendment may have the effect of tending
to discourage persons from initiating hostile takeover attempts of the
Corporation. The Stockholder Meeting Amendment protects the Corporation from the
use of a written consent by a person, group or entity who has accumulated a
majority of the Corporation's shares and who seeks to affect the makeup of the
Board of Directors or who seeks to pass resolutions that might be counter to the
interests of the remaining stockholders of the Corporation. Elimination of the
ability to act by written consent may lengthen the amount of time required to
take stockholder actions. Without the ability to act by written consent, a
holder or group of holders controlling a majority in interest of the
Corporation's Common Stock will not be able to amend the By-Laws or remove
directors until an annual meeting of stockholders is held. While the Stockholder
Meeting Amendment ultimately would not prevent an insurgent stockholder from
effecting certain takeover measures, it does ensure that they will not occur
without a regular or special meeting of stockholders and consequently without
advance notice.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE
STOCKHOLDER MEETING AMENDMENT AS DESCRIBED ABOVE AND AS SET FORTH AT APPENDIX B.
RATIFICATION OF APPOINTMENT OF AUDITORS
The firm of KPMG LLP, independent certified public accountants, has audited
the books and records of the Corporation for several years and the Board of
Directors desires to continue the services of this firm for the current fiscal
year. Accordingly, the Board recommends that the stockholders vote FOR the
ratification of the appointment by the Board of Directors of the firm of KPMG
LLP to audit the books and accounts of the Corporation for the current fiscal
year.
Representatives of KPMG LLP are expected to be available at the Meeting to
respond to appropriate questions and will be given the opportunity to make a
statement if they desire to do so. If the stockholders do not ratify the
appointment of this firm, the appointment of another firm of independent
certified public accountants will be considered by the Board of Directors.
THE BOARD OF DIRECTORS DEEMS THE RATIFICATION OF THE APPOINTMENT OF KPMG
LLP AS THE AUDITORS FOR THE CORPORATION TO BE IN THE CORPORATION'S BEST
INTERESTS AND RECOMMENDS A VOTE "FOR" SUCH RATIFICATION.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers and directors, and persons who own more than ten
percent of a registered class of the Corporation's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish the Corporation with
copies of all Section 16(a) forms they file.
Based solely on the Corporation's review of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for such persons, the Corporation believes that, during the fiscal year
ended September 30, 1998, all filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with.
STOCKHOLDER PROPOSALS
Stockholders who intend to submit proposals to be included in the
Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held
in 2000 must submit their proposals to the Secretary of the Corporation at 106
Charles Lindbergh Boulevard, Uniondale, New York 11553 not later than October 5,
1999. Such proposals must relate to matters appropriate for stockholder action
and be consistent with regulations of the SEC.
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Stockholders who intend to present proposals at the Corporation's Annual
Meeting of Stockholders to be held in 2000, and not intending to have such
proposals included in the Proxy Statement for that meeting must submit their
proposal to the Secretary of the Corporation at 106 Charles Lindbergh Boulevard,
Uniondale, New York 11553 not later than December 21, 1999. If notification of a
stockholder proposal is not received by the above date, the proposal may not be
presented.
By Order of the Board of Directors,
/s/ Robert l. Van Nostrand
ROBERT L. VAN NOSTRAND
Secretary
February 3, 1999
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APPENDIX A
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO AUTHORIZE 5,000,000 SHARES OF
PREFERRED STOCK TO BE DESIGNATED BY THE BOARD OF DIRECTORS FROM TIME TO TIME.
TEXT OF THE PROPOSED ARTICLE IV OF THE CERTIFICATE OF INCORPORATION OF THE
CORPORATION, AS AMENDED:
ARTICLE IV
CAPITAL STOCK
(a) Authorized Stock. The total number of shares of stock which the
Corporation shall have authority to issue is 55,000,000 shares, consisting of
50,000,000 shares of Common Stock, having a par value of $.01 per share, and
5,000,000 shares of Preferred Stock having a par value of $.01 per share.
(b) Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article IV, to provide
for the issuance of shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and other special and
relative rights of the shares of each such series and the qualifications,
limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
i. the number of shares constituting that series and the distinctive
designation of that series, which number may be increased and decreased
(but not below the number of shares then outstanding) from time to time by
action of the Board of Directors;
ii. the dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares
of that series;
iii. whether that series shall have voting rights in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
iv. whether that series shall have conversion privileges, and if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate upon the occurrence of such events as the
Board of Directors shall determine;
v. whether the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
vi. whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund; and
vii. the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series; and any other relative rights, preferences and
limitations of that series.
<PAGE> 30
APPENDIX B
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO PROHIBIT STOCKHOLDER ACTION
WITHOUT A MEETING
TEXT OF THE PROPOSED ARTICLE VII OF THE CERTIFICATE OF INCORPORATION OF THE
CORPORATION, AS AMENDED:
ARTICLE VII
MEETINGS OF STOCKHOLDERS AND
MEETINGS AND CONSENTS OF DIRECTORS;
CORPORATION BOOKS; ELECTIONS OF DIRECTORS;
AND NOTICES
Meetings of holders of Capital Stock of the Corporation and of the board of
directors and of any committee thereof may be held outside the State of Delaware
if the by-laws so provide. Except as otherwise provided by law or by this
certificate of incorporation, all actions of stockholders shall be taken at an
annual or special meeting of stockholders of the Corporation. No stockholder
action may be taken without a meeting, without prior notice and without a vote.
Any action required or permitted to be taken at any meeting of the board of
directors or of any committee thereof may be taken without a meeting as provided
by statute if the by-laws of the Corporation so provide. The elections of
directors need not be by ballot unless the by-laws of the Corporation so
provide. Except as otherwise provided by law, the books of the Corporation may
be kept outside the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the by-laws of the
Corporation. Any notice permitted or required by this certificate of
incorporation shall be written, signed by the sender and mailed, postage
prepaid, in the United States by certified or registered mail.
<PAGE> 31
APPENDIX C
OSI PHARMACEUTICALS, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS, MARCH 24, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE CORPORATION'S BOARD OF DIRECTORS
The undersigned hereby appoints Colin Goddard, Ph.D. and Robert L. Van
Nostrand, and each of them jointly and severally, Proxies, with full power of
substitution, to vote, as designated on the reverse side, all shares of Common
Stock of OSI Pharmaceuticals, Inc. (the "Corporation") held of record by the
undersigned on January 25, 1999, at the annual meeting of stockholders to be
held on March 24, 1999, or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
TO SERVE AS DIRECTORS, "FOR" THE AMENDMENT TO THE CORPORATION'S CERTIFICATE OF
INCORPORATION TO AUTHORIZE 5,000,000 SHARES OF PREFERRED STOCK, "FOR" THE
AMENDMENT TO THE CORPORATION'S CERTIFICATE OF INCORPORATION REQUIRING THAT ALL
ACTIONS BY STOCKHOLDERS MUST BE TAKEN AT A MEETING, AND "FOR" THE RATIFICATION
OF THE APPOINTMENT OF KPMG LLP AS THE CORPORATION'S INDEPENDENT PUBLIC
ACCOUNTANTS. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON
THE REVERSE SIDE. IF NO DIRECTION IS GIVEN IN THE SPACES PROVIDED ON THE REVERSE
SIDE, THIS PROXY WILL BE VOTED "FOR" ITEMS 1, 2, 3 AND 4.
OSI PHARMACEUTICALS, INC.
P. O. BOX 11097
NEW YORK, N.Y. 10203-0097
(Continued and to be dated and signed on the reverse side.)
<PAGE> 32
(Continued from other side)
<TABLE>
<S> <C> <C>
1. Election of Directors (Term to expire at next annual
meeting)
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
nominees listed below
<CAPTION>
<S> <C>
1.
[ ]*EXCEPTIONS
</TABLE>
<TABLE>
<S> <C>
Nominees: Gary E. Frashier, Edwin A. Gee, Ph.D., Colin Goddard, Ph.D.,
G. Morgan Browne, John H. French, II, Daryl K. Granner,
M.D., Walter M. Lovenberg, Ph.D., Steve M. Peltzman, John P.
White
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW.) THIS PROXY WILL BE VOTED FOR EACH NOMINEE FOR
WHOM AUTHORITY TO VOTE IS NOT WITHHELD. *EXCEPTIONS
------------------------------------------------
2. PROPOSAL TO AMEND THE CORPORATION'S CERTIFICATE OF INCORPORATION in order to
authorize 5,000,000 shares of preferred stock.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
3. PROPOSAL TO AMEND THE CORPORATION'S CERTIFICATE OF INCORPORATION in order to
require that all actions by stockholders must be taken at an annual or
special meeting of stockholders and not by written consent.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
4. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP as the independent public
accountants of the Corporation for the fiscal year ending September 30, 1999.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof
and matters incident to the conduct of the meeting.
Change of Address or Comments
Mark Here [ ]
Please sign exactly as the name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney, 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 and affix
corporate seal. If a
partnership, please sign in
partnership name by general
partner.
--------------------------------(SEAL)
Signature
--------------------------------(SEAL)
Dated: Signature if held jointly
- --------------- , 1999
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. [X]
(PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE.)
