<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PACIFIC 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
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule A
[ ] $500 per each party to the controvery pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] 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 of 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>
PACIFIC PHARMACEUTICALS, INC.
6730 MESA RIDGE ROAD, SUITE A
SAN DIEGO, CA 92121
(619) 550-3900
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 13, 1998
-------------------
Notice is hereby given that an Annual Meeting (the "Meeting") of the
Stockholders of Pacific Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), will be held at the offices of Patterson, Belknap, Webb & Tyler
LLP, 1133 Avenue of the Americas, New York, NY 10036, on Thursday, August 13,
1998, at 10:00 a.m. E.S.T., and at any adjournments thereof, for the
following purposes:
1. To elect six Directors to hold office for a one-year term or until
their successors are elected and qualified. The following persons are
nominees (the "Nominees") for election to the Board of Directors by
holders of the outstanding shares entitled to vote: Drs. and Messrs.
H. Laurence Shaw, Robert A. Vukovich, Jack H. Halperin, John G.
Kringel, Elliott H. Vernon and Michael S. Weiss;
2. To authorize the Company to enter into and perform agreements, in
connection with a private placement financing by the Company and the
Company's subsidiary, BG Development Corp. ("BGDC"), to exchange
shares of BGDC Convertible Preferred Stock for shares of the Company's
Common Stock under certain circumstances (the "Exchange Right");
3. To consider and act upon a proposal to ratify the selection of
Deloitte & Touche LLP as the Company's independent public accountants
for the fiscal year ending March 31, 1999; and
4. To consider and act on such other business as may properly be
presented at the Meeting.
<PAGE>
A record of the stockholders has been taken as of the close of business on
June 26, 1998 (the "Record Date"), and only those stockholders of record on
the Record Date will be entitled to notice of and to vote at the Meeting. A
complete list of the stockholders entitled to vote at the Meeting arranged in
alphabetical order, and showing the address of such stockholder and the
number of shares registered in the name of each stockholder, will be kept
open at the offices of Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of
the Americas, New York, NY 10036, for examination by any stockholder during
business hours for a period of ten (10) days immediately prior to the Meeting.
The votes of a majority of the shares present at the meeting in person or by
proxy is required for the approval of the Nominees, for the approval of the
Exchange Right and to ratify the selection of Deloitte & Touche LLP as the
Company's independent accountants.
Your participation in the Meeting is important. To ensure your
representation, if you do not expect to be present at the Meeting, please
sign and date the enclosed proxy and return it promptly in the enclosed
postage-prepaid envelope which has been provided for your convenience. A
proxy may be revoked by a later dated, properly executed proxy. The prompt
return of proxies will ensure a quorum for the Meeting and save the expense
of a further solicitation.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ DR. H. LAURENCE SHAW
----------------------------------
DR. H. LAURENCE SHAW
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SAN DIEGO, CALIFORNIA
JULY 8, 1998
IT IS IMPORTANT THAT YOUR SHARES BE PRESENTED AT THE MEETING. YOUR
VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN, PLEASE EXECUTE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
<PAGE>
PACIFIC PHARMACEUTICALS, INC.
6730 MESA RIDGE ROAD, SUITE A
SAN DIEGO, CA 92121
(619) 550-3900
JULY 8, 1998
-------------------
PROXY STATEMENT
-------------------
SOLICITATION OF PROXIES
This proxy statement (the "Proxy Statement") is furnished in connection with
the solicitation of proxies by the Board of Directors of Pacific
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting (the "Meeting") of Stockholders, to be held at the offices of
Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the Americas, New York,
NY 10036, on Thursday, August 13, 1998, at 10:00 a.m. E.S.T. and at any
adjournments thereof.
Shares of capital stock of the Company entitled to vote at the Meeting which
are represented by properly executed and dated proxies returned prior to the
Meeting will be voted at the Meeting in accordance with the specifications
thereon. Shares represented by valid proxies will be voted in accordance with
the instructions indicated thereon and otherwise in accordance with the
judgment of the persons designated as the holders of the proxies. Any proxy
on which no direction is specified will be cast: FOR Proposal 1 to elect the
Nominees as Directors; FOR Proposal 2 to authorize the Company to enter into
and perform agreements, in connection with a private placement financing by
the Company and the Company's subsidiary, BG Development Corp. ("BGDC"), to
exchange shares of BGDC Convertible Preferred Stock for shares of the
Company's Common Stock under certain circumstances (the "Exchange Right");
and FOR Proposal 3 to ratify the selection of Deloitte & Touche LLP as the
Company's independent public accountants for the fiscal year ending March 31,
1999. The proxy also confers discretionary authority on the persons
designated therein to vote on other business, not currently contemplated,
which may come before the Meeting.
Any stockholder giving a proxy has the right to revoke it by giving written
notice to the Secretary of the Company or by duly executing and delivering a
proxy bearing a later date or by attending the Meeting and giving oral notice
to the Secretary at any time prior to the voting.
This Proxy Statement, accompanying form of proxy and the Fiscal 1998 Annual
Report to Stockholders, including financial statements, are first being
mailed to stockholders on or about July 8, 1998.
1
<PAGE>
A complete list of the stockholders entitled to vote at the Meeting arranged
in alphabetical order, showing their address and the number of shares
registered in the name of each stockholder, will be kept open at the offices
of Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the Americas, New
York, NY 10036, for examination by any stockholder during business hours for
a period of ten (10) days immediately prior to the Meeting.
The cost of the solicitation of proxies for the Meeting will be paid by the
Company. In addition to solicitation of proxies by use of mails, Directors,
Officers and employees of the Company may solicit proxies personally, or by
other appropriate means. The Company will request banks, brokerage houses
and other custodians, nominees or fiduciaries holding stock in their names
for others to send proxy materials to, and to obtain proxies from the
beneficial holders of such stock, and the Company will reimburse them for
their reasonable expenses in doing so.
QUORUM
The presence in person or by proxy of stockholders of a majority of the
outstanding shares entitled to vote is required for there to exist the quorum
needed to transact business of the Meeting. If, initially, a quorum should
not be present, the Meeting may be adjourned from time to time until a quorum
is obtained.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the voting power of the
common stock, par value $.02 per share (the "Common Stock") and the Series A
Convertible Preferred Stock, par value $25.00 per share (the "Preferred
Stock"), present at the meeting in person or by proxy is required for the
approval of the Nominees as Directors, for the approval of the Exchange Right
and to ratify the selection of Deloitte & Touche LLP as the Company's
independent accountants.
Abstentions and "broker non-votes" (as defined below) are counted for
purposes of determining whether a quorum is present, but do not represent
votes cast with respect to any proposal. Abstention from voting on any
matter will have the practical effect of voting against any of the proposals
since it is one less vote for approval. Broker non-votes are not considered
to be shares "entitled to vote" (other than for quorum purposes), and will
therefore have the effect of reducing the absolute number of votes required
for stockholders to approve Proposals 1, 2, and 3. "Broker non-votes" are
shares held by a broker or nominee for which an executed proxy is received by
the Company, but are not voted as to one or more proposals because
instructions have not been received from the beneficial owners or persons
entitled to vote and the broker or nominee does not have discretionary power
to vote.
2
<PAGE>
APPRAISAL RIGHTS
Stockholders will not have appraisal rights with respect to any of the
proposals to be voted upon at the Meeting. Delaware law does not require
that holders of the Common Stock and Preferred Stock who object to any or all
of the Proposals, and who vote against or abstain from voting in favor of any
or all of the Proposals, be afforded any appraisal or dissenters' rights or
the right to receive cash for their shares.
RECORD DATE AND OUTSTANDING VOTING SECURITIES
The securities of the Company entitled to vote at the Meeting consist as of
June 26, 1998, the record date fixed by the Board of Directors (the "Record
Date"), of 11,221,133 shares of Common Stock, and 38,564 shares of Preferred
Stock. Each share of Common Stock is entitled to one vote on all matters
presented to the stockholders. Each share of Preferred Stock outstanding as
of the record date is entitled to 290.89 votes on all matters presented to
the stockholders. Only stockholders of record on the books of the Company at
the close of business on the Record Date will be entitled to vote at the
Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that the Company's stockholders
vote (i) FOR the election of the Nominees as Directors, (ii) FOR approval of
the Exchange Right, and (iii) FOR ratification of the selection of Deloitte &
Touche LLP as the Company's independent public accountants for the fiscal
year ending March 31, 1999.
AVAILABLE INFORMATION
The Company's Annual Report to Stockholders for the Fiscal Year ending March
31, 1998, including financial statements, accompanies this Proxy Statement.
Stockholders and Preferred Stockholders may obtain (free of charge) a copy of
the Company's most recent Annual Report on Form 10-K, excluding Exhibits, as
filed with the Securities and Exchange Commission (the "SEC") by writing to
Pacific Pharmaceuticals, Inc., Attention: Investor Relations, at the address
shown on Page 1.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the SEC. The reports, proxy
statements and other information filed by the Company with the SEC can be
inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's Regional Offices at Seven World Trade Center, 13th Floor, New York, NY
10007 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material also can be obtained from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549
3
<PAGE>
at prescribed rates. Information filed with the SEC can also be inspected at
the SEC's site on the World Wide Web at http://www.sec.gov. In addition,
material filed by the Company can be inspected at the offices of the American
Stock Exchange ("Amex") at 86 Trinity Place, New York, NY 10006.
4
<PAGE>
EXECUTIVE COMPENSATION
The information under this heading relates to the compensation of the
Chairman of the Board (who was also the Chief Executive Officer at Fiscal
1998 year-end) and the other most highly compensated executive officer of the
Company as of the Fiscal 1998 year-end for services in all capacities during
Fiscal 1998. This information is presented in compliance with the rules and
regulations of the Securities and Exchange Commission applicable to those
companies, such as Pacific Pharmaceuticals, Inc., that meet the definition of
a "small business issuer".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------- ---------- -------
Name and Restricted Number LTIP
Principal Fiscal Salary Bonus Other Stock of Payout
Position Year Awards Options Amount
Amount
- - --------------------- ------ ---------- ------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
H. Laurence Shaw, M.D. 1998 $253,646 $35,000 $150,439(a) $56,875 200,000 $ -
Chairman of the 1997 $ 64,000(b) $25,000 $ 23,493 $ - 675,000 $ -
Board and Chief
Executive Officer
Anil K. Singhal, Ph.D.(c) 1998 $125,437 $20,000 $ - $ 8,750 225,000 $ -
Vice President - R & D
</TABLE>
(a) Includes $13,401 for reimbursement of health, life and disability insurance
coverage and $137,038 for reimbursement of relocation costs.
(b) Represents approximately three months' compensation earned after Dr. Shaw
joined the Company in December 1996.
(c) Dr. Singhal joined the Company in April 1997.
5
<PAGE>
COMPENSATION PURSUANT TO PLANS
INDIVIDUAL OPTION GRANTS TO EXECUTIVE OFFICERS DURING FISCAL 1998
<TABLE>
<CAPTION>
Potential Realizable Value
Percent at Assumed Annual
Number of of Total Rates of Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term
Name of Options Employees Exercise Expiration --------------------------
Executive Officer Granted in FY 1997 Price Date 5% 10%
- - ----------------- ---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
H. Laurence Shaw 200,000(a) 22% $0.90625 02/10/08 $185,251 $402,342
Anil Singhal 150,000(b) 16% $1.0625 04/16/07 $100,230 $254,003
75,000(c) 8% $0.75 03/12/08 $73,553 $150,439
</TABLE>
(a) 66,667 options vest on January 1, 1999, 66,667 vest on January 1, 2000 and
66,666 vest on January 1, 2001.
(b) 100,000 options become exercisable in four equal annual installments after
the first anniversary of the grant date. 50,000 options vest upon
achievement of certain milestones. As of March 31, 1998, 40,000 options
were vested.
(c) Options become exercisable in four equal annual installments after the
first anniversary of the grant date.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR END 1998 OPTION
VALUES
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Number of Unexercised Options In-The-Money Options
Shares at March 31, 1998 at March 31, 1998
Name of Acquired Value ----------------------------- -----------------------------
Executive Officer on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ----------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Laurence Shaw - $ - 365,625 509,375 $ - $ -
Anil K. Singhal - $ - 40,000 185,000 $ - $ -
</TABLE>
6
<PAGE>
EMPLOYMENT AGREEMENT
Dr. Shaw has an employment agreement (the "Employment Agreement") with the
Company for an initial two year period beginning December 17, 1996, subject
to renewal upon mutual agreement. The Employment Agreement provides that the
Company will pay Dr. Shaw an initial salary of $250,000 per annum, subject to
certain annual increases. Effective January 1, 1998, the Company increased
Dr. Shaw's annual salary to $262,500. Under the Employment Agreement, Dr.
Shaw is also entitled to receive a minimum annual bonus of $25,000, with an
additional annual milestone-based bonus at the discretion of the Board of
Directors of up to an additional $125,000. The Employment Agreement also
provides for the Company to pay Dr. Shaw compensation equal to his salary and
minimum bonus for a period of 12 months in the event of his early termination
from the Company for a reason other than just cause or in the event that Dr.
Shaw terminates the Employment Agreement for (i) a material breach of the
Employment Agreement by the Company, (ii) the failure of the Company to elect
Dr. Shaw to the office of Chief Executive Officer, President and Director of
the Company, (iii) a reduction in Dr. Shaw's base salary or other benefits of
a material economic effect, or (iv) in the event of a "change of control" of
the Company. A "change of control" is defined in the Employment Agreement to
mean a merger or consolidation in which either more than fifty percentage of
the voting power of the Company is transferred or the Company is not the
surviving entity, or the sale or other disposition of all or substantially
all the assets of the Company.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company currently receive an annual
retainer of $3,000 and a fee of $1,000 for each Board meeting attended in
person. The Company also reimburses Directors for reasonable travel and
related expenses incurred in attending meetings. Officers of the Company who
serve on the Board or any Committee thereof receive no compensation for doing
so.
The Company grants 50,000 options to each new Director pursuant to the
Company's Stock Option Plan for Non-Employee Directors (the "Director Plan").
In addition, the Director Plan calls for annual grants of 10,000 options for
each Director at the market price on the date of the Annual Stockholders'
Meeting.
7
<PAGE>
BENEFICIAL AND RECORD OWNERSHIP OF SECURITIES
The following table sets forth certain information as of June 26, 1998, with
respect to the beneficial ownership of the Company's Common Stock and Preferred
Stock by (a) each person who is known to the Company to own beneficially more
than 5% of the outstanding shares of Common Stock and Preferred Stock; (b) each
present executive officer, Director and Nominee, and (c) all Executive Officers,
Directors and Nominees as a group. Except as otherwise indicated, the address
of each person is care of Pacific Pharmaceuticals, Inc., 6730 Mesa Ridge Road,
Suite A, San Diego, CA 92121.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
--------------------- ----------------- % of Total
Name Shares (1)(2) % Shares (1)(2) % Voting Power
- - ---- ------------ ------ -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Paramount Capital Asset
Management, Inc. (3) 2,426,400 17.29% 14,338 27.10% 26.43%
Dr. Lindsay Rosenwald (3) 2,858,783 19.76% 24,684 39.03% 34.19%
The Aries Trust (3) 1,445,250 11.07% 9,461 19.70% 17.52%
Aries Domestic Fund, L. P. (3) 981,150 7.79% 4,877 11.23% 10.28%
Lou Weisbach
5980 West Touhy Ave.
Niles, IL 60714 955,100 7.84% - - 4.26%
Dr. H. Laurence Shaw 460,000 4.10% - - 2.01%
Anil K. Singhal 67,000 * *
Jack H. Halperin 54,800 * - - *
John G. Kringel 37,500 * - - *
Elliott H. Vernon 47,900 * - - *
Michael S. Weiss (4) 113,174 1.00% 1,557 3.88% 2.46%
Robert A. Vukovich 29,300 * - - *
All Directors and Executive
Officers as a group (7 persons) 809,764 7.22% 1,557 3.88% 5.52%
</TABLE>
8
<PAGE>
(1) The inclusion of any shares deemed beneficially owned does
not constitute an admission by the person named that he is the beneficial
owner of those shares. Beneficial ownership also includes shares of
Common Stock which may be acquired within 60 days of June 26, 1998
through the exercise of warrants or options as follows: Dr. Rosenwald
2,458,783 shares; Aries Domestic Fund L.P., 781,150 shares; The Aries
Trust, 1,245,250 shares; Paramount Capital Asset Management, Inc.,
2,026,400 shares; Dr. Shaw, 450,000; Mr. Singhal, 65,000; Mr. Halperin,
54,800 shares; Mr. Kringel, 32,500 shares; Mr. Vernon, 47,900 shares; Mr.
Weiss, 113,174 shares; and all Directors and Executive Officers as a
group 785,874 shares. Beneficial ownership also includes shares of
Preferred Stock which may be acquired within 60 days of June 26, 1998
through the exercise of warrants as follows; Dr. Rosenwald, 12,045
shares; Aries Domestic Fund, L.P., 578 shares; Aries Trust, 1,121 shares;
Paramount Capital Asset Management, Inc., 1,699 shares; and Mr. Weiss,
1,558 shares. Although the Preferred Stock is convertible into Common
Stock, it is not reflected on an as-converted basis in the Common Stock
Column because, as a voting security, it is reflected in its own column.
(2) To the best of the Company's knowledge, unless otherwise indicated,
the beneficial owners names in column one have sole voting and investment
power with respect to the shares held.
(3) Reflects beneficial ownership in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. Paramount Capital Asset Management, Inc.
is the general partner of Aries Domestic Fund, L.P., and is the
investment manager of the Aries Trust, and therefore may be deemed to be
the beneficial owner of shares beneficially owned by each. Dr. Lindsey
Rosenwald is the President and sole shareholder of Paramount Capital
Asset Management, Inc. and may therefore deemed to be the beneficial owner
of shares beneficially owned by Paramount, and each of the Fund and the
Trust, although he disclaims such beneficial ownership except to the
extent of his primary interests. Other than the 2,426,400 shares of
Common Stock and the 14,338 shares of Preferred Stock attributed to Dr.
Rosenwald through the holdings of Paramount Capital Asset Management,
Inc., Dr. Rosenwald's attributed beneficial ownership consists of
432,383 shares of Common Stock and 10,346 of Preferred Stock underlying
certain warrant exercisable within 60 days.
(4) Includes warrants to purchase 46,174 shares of Common Stock and 1,557
shares of Preferred Stock. Mr. Weiss disclaims beneficial ownership of
all shares owned by other employees of principals of Paramount or
Paramount Capital.
* Less than 1%
9
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Six Directors are to be elected at the Meeting, each to serve for a term of
one year and until his successor shall be duly elected and qualified. The
proxies solicited hereby are intended to be voted FOR the Nominees whose
names are listed below unless authority to vote for election of any or all of
such nominees is withheld by marking the proxy to that effect. If a quorum
is present, the six nominees receiving an affirmative vote of the holders of
a majority of the Common Stock and Preferred Stock represented and entitled
to vote at the Meeting in person or by proxy shall be elected. Shares with
respect to which authority to vote for a nominee or nominees is withheld will
not be counted in the total number of shares voted for such nominee or
nominees. The Company has no reason to believe that any nominee will not be
available for election to serve his prescribed term. However, if any nominee
should for any reason be unable to serve, the shares represented by all valid
proxies will be voted for the election of such other person as the Board may
recommend in his place, or the Board may reduce the number of Directors to
eliminate the vacancy.
Pursuant to the Company's Bylaws, the size of Board of Directors is currently
fixed at nine members. However, the Board has nominated only the six
existing Board members for election at this time. Votes cannot be cast,
either in person or by proxy, for a greater number of persons than the number
of nominees named herein.
The following table sets forth the name and age of each nominee and the
positions and offices with the Company held by him, his principal occupation
and business experience during the past five years, and the year of
commencement of his term as a Director of the Company.
10
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE ELECTION OF THE FOLLOWING NOMINEES:
H. LAURENCE SHAW, M.D., Chairman, President and Chief Executive Officer, 52,
became a Director in 1996. From 1995 to 1996, Dr. Shaw served as Corporate
Vice President Research & Development of C.R. Bard. Prior to that, from
1993-1995, Dr. Shaw served as Chief Executive Officer, President and Director
of Atlantic Pharmaceuticals, Inc. and Chief Executive Officer of each of
Atlantic's operating companies from their inception in 1993. From 1984-1993,
he was Vice President, Medical and Regulatory Affairs and Advanced Research
at Abbott Laboratories. From 1981-1984, he was a board member of Revlon
Health Care, Ltd. (UK) and Director, Medical and Technical Affairs. At
Revlon, he was responsible for pharmaceutical formulation and development,
new business development and clinical research for Revlon's major research
unit outside of the USA. Prior to Revlon, he served as International Medical
Director for Meadox Medical Inc.; Medical Director for Merck in the UK; and
as Associate Director for SmithKline Corporation. Dr. Shaw is a graduate of
the University College Hospital Medical School, London, UK and has worked in
clinical practice in the UK and in the USA. He is a Fellow of the Faculty of
Pharmaceutical Medicine of the Royal College of Physicians, a Fellow of the
American College of Clinical Pharmacology and a member of many professional
associations. Dr. Shaw also serves on the Board of directors of Endorex
Corporation and is Chairman, President and CEO of BG Development Corp.
JACK H. HALPERIN, 51, became a Director in 1992. Mr. Halperin is a corporate
and securities attorney with expertise in financing transactions who has
practiced independently since 1987. Mr. Halperin was a member of the law
firm of Solinger Grosz & Goldwasser, P.C. from 1981 to 1987. Mr. Halperin
has a B.A. from Columbia College and a J.D. from New York University School
of Law. Mr. Halperin is a member of the Board of Directors of I-Flow
Corporation, AccuMed International, Inc., Memory Corporation and Nocopi
Technologies, Inc.
JOHN G. KRINGEL, 59, became a Director in 1997. Mr. Kringel, was Senior Vice
President of Hospital Products and President of Hospital Products Division of
Abbott Laboratories from October 1990 and September 1983 until June 30, 1998.
He joined Abbott in 1980 as divisional vice president of corporate planning
and development. From 1977 to 1980, Kringel was associated with the
Warner-Lambert Co., where he was executive vice president of American Optical
Corporation and president of the vision care and safety products division.
Prior to that, Kringel was general manager of the U.S. medical division of
Corning Glass Works. Mr. Kringel is a member of the Board of Directors of
Lakeland Health Services, Inc., and the Board of Trustees of Highland Park
Hospital and Chairman of Groveland Health Services Board of Trustees. He is
also Chairman of Lakeland Health Ventures, Inc.'s Board of Directors. He is
a member of the Board and Chairman of the Northeast Illinois Council of the
Boy Scouts of America, Member of the Board of Directors of the American
Society of Hospital Pharmacists Research & Education Foundation, and a member
of the Board of Directors of Navix Radiology Systems, Inc.
11
<PAGE>
ELLIOTT H. VERNON, 55, became a director in 1995. Mr. Vernon has been the
Chairman of the Board and Chief Executive Officer of Healthcare Imaging
Services, Inc., a publicly held health care management and services company
that supplies state-of-the-art medical equipment and services to physicians,
hospitals, and other health care providers in the Northeast region since its
inception in 1991. Mr. Vernon is also the managing partner of MR General
Associates, a New Jersey general partnership and the general partner of DMR
Associates, and has held such positions for the past seven years. Mr. Vernon
is Of Counsel to the law firm of Schottland, Aaron, Plaza, Costanzo &
Manning, Esq., with offices in New York and New Jersey. Mr. Vernon is
currently a director of Transworld Home Healthcare, Inc., a publicly held
regional supplier of a broad range of alternate site healthcare services and
products.
ROBERT A. VUKOVICH, Ph.D., 55, became a Director in January 1998. Dr.
Vukovich founded Roberts Pharmaceutical in 1983 and served as Chairman of the
Board, Chief Executive Officer and President until September 1997, and is
presently Executive Chairman. From 1979-1983, he was the worldwide
divisional director of Developmental Therapeutics at Revlon Health Care
Group, and held positions prior to 1979 in drug development with the Squibb
Institute for Medical Research and Warner Lambert Research Institute. Dr.
Vukovich is also a member of the Board of Directors for Cypros
Pharmaceutical, Entrepreneur of the Year Institute, Biotransplant, Inc., and
is on the Board of Trustees at Allegheny College. He is a graduate of
Jefferson Medical College.
MICHAEL S. WEISS, 32, became a director in 1995. Mr. Weiss is Senior Managing
Director of Paramount Capital, Inc., an investment banking firm and certain
affiliated entities. He joined the companies is 1993. Prior to that, Mr.
Weiss was an attorney with Cravath, Swaine & Moore. Mr. Weiss is Vice
Chairman of Genta, Incorporated and Chairman of Procept, Inc. Mr. Weiss also
serves as a director of AVAX Technologies, and Palatin Technologies, Inc. and
is secretary of Atlantic Pharmaceuticals, Inc., all of which are publicly
traded biotechnology companies. Mr. Weiss is also currently a member of the
Board of Directors of several privately held biopharmaceutical companies,
including Nephros, Inc. and Cardio Technologies, Inc. Mr. Weiss is also a
Director and Secretary of Binary Therapeutics, Inc. and is a Director and
Secretary of BG Development Corp. Mr. Weiss received his J.D. from Columbia
University School of Law and a B.S. in Finance from The State University of
New York at Albany.
Committees of the Board of Directors
The Board of Directors met five times during fiscal year 1998. The Company's
Board of Directors has an Audit Committee and Executive Compensation and
Stock Option Committee. The Board has no nominating or similar committee.
The current members of the Audit Committee are Messrs. Kringel, Halperin and
Weiss. This committee monitors the Company's basic accounting policies,
reviews audit and management reports and makes recommendations regarding the
appointment of the independent auditors. The Audit Committee met once during
the last fiscal year, and otherwise its responsibilities were assumed by the
full Board of Directors. The members of the Executive
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Compensation Committee and Stock Option Committee are Messrs. Halperin,
Vernon and Vukovich. This committee, which met once during the last fiscal
year and reviews and determines appropriate Officer compensation and
administers and makes awards under the various stock option plans. During
fiscal 1998, all of the Company's Directors attended at least 75% of the
meetings of the full Board and of committees of which they were members.
The affirmative vote of the holders of a majority of the voting power of the
Common Stock and Preferred Stock present at the Meeting in person or by proxy
is required to approve the election of the Nominees as Directors of the
Company.
PROPOSAL 2
APPROVAL OF EXCHANGE RIGHT
RIGHTS TO O6 BENZYL GUANINE COMPOUND
In March 1998, the Company and Pennsylvania State University (the
"Licensor"), entered into an exclusive, worldwide, royalty bearing license
agreement (the "License") with the right to grant sublicenses to certain
patents and patent applications relating to the manufacture and use of
proposed products incorporating O6 Benzyl Guanine ("BG"). The Company, in
turn, assigned the License to its subsidiary, B-G Development Corp. ("BGDC"),
pursuant to an Assignment and Assumption Agreement dated April 20, 1998 (the
"Assignment"), and BGDC issued 7,500,000 shares of its common stock, par
value $.001 per share, to the Company. In accordance with the Assignment,
BGDC has assumed the obligations of the Company under the License, including
royalty and other payments more fully described below, provided that Pacific
guarantees such payments. Additionally, BGDC and the Company have entered
into a one-year renewable Corporate Services and Management Agreement
pursuant to which the Company will provide financial/accounting,
administrative, advisory and managerial support to BGDC. For such services,
the Company will receive from BGDC a management fee equal to $500,000 per
year, payable in equal monthly installments.
The Company has had preliminary discussions with the N.I.H. with respect to
entering into a Cooperative Research and Development Agreement ("CRADA") for
BG. Pursuant to the CRADA, the N.I.H. would, among other things, make
available to BGDC (a) all N.I.H. clinical data relating to any potential
products incorporating BG developed or generated by the N.I.H. prior to the
date of the CRADA and (b) all subsequent data developed under such CRADA.
The Company estimates that, pursuant to the CRADA, it would be required to
pay approximately $125,000 per year to the N.I.H.
In accordance with the terms of the License, the Company has agreed to pay to
the Licensor a percentage of sales of Licensed Products as well as certain
performance-based milestones. The Company has also agreed to pay the
Licensor a non-refundable minimum annual royalty (the "Minimum Annual
Royalty") equal to $75,000 per year creditable against future milestone
payments
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and third party payments, commencing upon execution of the License but
subject to certain deferrals. Additionally, the Company will pay to the
Licensor $150,000 as an up-front licensing fee, payable upon the earlier to
occur of (a) receipt by the Company of the National Cancer Institute (the
"N.C.I.") Clinical Data and pre-clinical data or (b) the date that is six
months from the Effective Date, payable in cash or equity at the discretion
of the Company. The Company may fulfill up to 75% of its payment obligations
resulting from Minimum Annual Royalties or performance milestones through the
issuance of a number of shares of the Company's Common Stock equal to the
cash value of such payments for this purpose, the Company's common stock
shall be valued at the average closing price of the Company's Common Stock on
the 10 consecutive trading days prior to (a) the date of achievement of any
such milestone or (b) the date on which such payment accrues. To the extent
that the Company satisfies any of the payment obligations under the License
through the issuance of the Company's Common Stock, BGDC has agreed to
reimburse the Company with a cash payment of the obligation amount.
Upon receipt of appropriate documentation of past patent expenses, the
Company shall also pay to the Licensor the approximate amount of $200,000
(for which BGDC has agreed to reimburse the Company) in installments
commencing upon the earlier to occur of (a) receipt by the Company of the
N.C.I. Clinical Data and pre-clinical data and (b) the date that is six
months from the Effective Date of the License.
TRANSACTION GIVING RISE TO THE EXCHANGE RIGHT
The Company and BGDC are pursuing a private placement transaction (the
"Transaction") to fund the development of BG and to provide capital resources
for the Company to develop its other products. Any offer and sale of
securities in the Transaction would be made in reliance on an exemption from
registration under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. Under the proposed terms of the
Transaction, the Company and BGDC would sell up to $10.0 million of a class
of Preferred Stock of BGDC (the "BGDC Preferred Stock") convertible into
shares of BGDC common stock. Under the proposed terms, the Company would
receive approximately 25% of the proceeds of the Transaction with the
remaining 75% going directly to BGDC. Following any closing of the
Transaction, BGDC would no longer be a wholly owned subsidiary of the
Company, but at all times would be majority owned by the Company. The
Company cannot predict when or if a closing of the Transaction will occur.
In accordance with the terms of the Transaction, each holder of the BGDC
Preferred Stock and the Company would enter into agreements providing each
holder with the right to exchange their BGDC Preferred Stock with the Company
to the extent that any shares of the BGDC Preferred Stock were outstanding on
the date that is one year following the final closing date of the Transaction
(the "Initial Exchange Date"). In accordance with terms of such agreements,
(i) for the 60-day period following the Initial Exchange Date, each holder of
the BGDC Preferred Stock would have the right to sell their shares of the
BGDC Preferred Stock to the Company for $2.00 per share, and (ii) for the
60-day period following the one year anniversary of the Initial Exchange Date
(the "Final Exchange Date"), each holder of the BGDC Preferred Stock would
have the right to put their shares of BGDC Preferred Stock to the Company for
$3.99 per share (in either case the "Put Purchase Price"). Importantly, the
Company has the right, in its discretion, to pay the Put Purchase Price in
cash, the Company's Common Stock or any combination thereof. In the event
that the Company elects to pay
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the Put Purchase Price in shares of Company Common Stock ("Exchange Shares"),
the number of Exchange Shares to be delivered will be determined by dividing
(a) that portion of the Put Purchase Price to be paid in Exchange Shares by
(b) the average closing price of Company's Common Stock for the 30
consecutive trading days immediately preceding the Initial Exchange Date or
the Final Exchange Date as the case may be, on the principal national
securities exchange on which Company's Common Stock is admitted to trading or
listed, or if not listed or admitted to trading on any such exchange, the
closing bid price of Company Common Stock as reported by the NASDAQ, or other
similar organization if NASDAQ is no longer reporting such information, or,
if the Company's Common Stock is not reported on NASDAQ, the closing bid
price for the Company's Common Stock in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or if not
so available, the fair market value of the Company's Common Stock as
determined in good faith between the Board of Directors of the Company and
the holders of a majority of the BGDC Preferred Stock then outstanding.
THIS PROXY STATEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OF THE COMPANY, THE PROPOSED TO BE ISSUED
SECURITIES REFERRED TO IN THIS PROXY STATEMENT HAVE NOT BEEN REGISTERED FOR
SALE BY THE COMPANY UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SO OFFERED OR
SOLD ABSENT SUCH REGISTRATION UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS OR ANY EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREOF.
STOCKHOLDER APPROVAL
Section 713 of the American Stock Exchange, Inc.'s ("AMEX") Listing Standards,
Policies and Requirements sets forth certain stockholder approval requirements
for companies with AMEX listed securities. In general, pursuant to Section 713,
the Company is required to obtain stockholder approval prior to its issuance of
Common Stock (or securities convertible into Common Stock) equal to 20% of the
outstanding shares of Common Stock (the "20% Rule") at a price below the greater
of the book value or market value of the Common Stock. Other exchanges, as well
as the NASDAQ Stock Market, have similar requirements. Accordingly, in order to
comply with the 20% Rule or any such similar rule, the prior approval of
stockholders would be a condition precedent to the Company's consummation of any
such transaction or transactions.
The Company is specifically seeking the Stockholders' approval to authorize the
Company to enter into and perform agreements in connection with the Transaction
and the Exchange Right, and in connection therewith, to use such amount of the
Company's Common Stock that the Board of Directors determines to be appropriate,
in its discretion, to satisfy the Put Purchase Price (such election by the
Company, the "Exchange Right"), when and if the Put Right is exercised by any of
the holders of the BGDC Preferred Stock.
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Under certain circumstances, the Company's election to utilize the Exchange
Right, and to issue shares of the Company's common stock to satisfy the Put
Right, could result in the issuance of shares of Common Stock in excess of the
20% Rule. Ultimately, whether or not the 20% Rule is implicated by the Exchange
Right would depend upon the price of the Company's Common Stock, the amount of
BDGC Preferred Stock tendered pursuant to the Put Right, and how AMEX or any
other exchange or market on which the Company's securities were then listed or
reported would interpret the 20% Rule in relation to the Exchange Right at the
time it was implemented. In any event, if the market price of the Company's
Common Stock were low at the time the Exchange Right were implemented, and a
substantial number of BDGC Preferred Stock shares tendered, substantial dilution
could occur to the existing stockholders of the Company.
The Board of Directors believes that it is in the Company's best interests to
consummate the Transaction and the Company intents to proceed with the
Transaction whether or not the Exchange Right is approved by the Company's
stockholders. In the event that stockholder approval is not obtained, the
Company may have to pay cash to satisfy the Put Right, or the Board of Directors
may, in consideration of its fiduciary duties, also determine to proceed with
the Exchange Right if they determine such action to be in the Company's best
interests. In such instance, the Company may no longer qualify for inclusion on
the AMEX or any other exchange or market on which the Company's securities were
then listed.
Although the issuance of shares of Common Stock pursuant to the Exchange Right
as proposed herein could have a dilutive effect on the Company's current
stockholders, the Board of Directors believes that stockholder approval of the
issuance of such stock in the best interests of the Company. Approval of the
Exchange Right will give the Company maximum flexibility to address the Put
Right when and if it is exercised in the future. Accordingly, the Board of
Directors strongly recommends that stockholders vote to approve the Exchange
Right. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the foregoing proposal.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
IN FAVOR OF THE EXCHANGE RIGHT. PROXIES SOLICITED BY THE BOARD OF DIRECTORS
WILL BE VOTED IN FAVOR OF THE PROPOSAL UNLESS STOCKHOLDERS SPECIFY OTHERWISE.
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PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Although not required to do so, the Board customarily seeks stockholder
ratification of its selection of Deloitte & Touche LLP to serve as the
Company's independent public accountants for the fiscal year ending March 31,
1999. Deloitte & Touche LLP has served as the Company's independent public
accountants since 1983. It is anticipated that a representative of Deloitte
& Touche LLP will attend the Meeting in person or by telephone, and will have
an opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR RATIFICATION OF DELOITTE & TOUCHE LLP TO SERVE AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING MARCH 31, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described above, in March of 1998 the Company entered into a license
agreement for BG with the owners of the patents for BG and subsequently
assigned its rights to BGDC. The Company and BGDC have entered into a
one-year renewable Corporate Services and Management Agreement pursuant to
which Pacific will provide financial/accounting, administrative, advisory and
managerial support to BGDC and the Company will receive from BGDC a
management fee of $500,000 per year, payable in monthly installments. The
director and officers of BGDC are: Dr. H. Laurence Shaw as Chairman,
President and CEO, Anil K. Singhal as a Director and Chief Scientific Officer
and Michael S. Weiss as a Director and Secretary.
In connection with the license agreement, the Company entered into an
Introduction Agreement with Paramount Capital Investments LLC, Inc. ("PCI").
The agreement provides for cash consideration of $100,000 plus reimbursement
of expenses, as well as milestone payments in the Company's Common Stock of
up to 1,000,000 shares if the BG compound successfully reaches certain
milestones.
In connection with the Transaction, the Company, BGDC and a placement agent
(the "Placement Agent") have also entered into a placement agency agreement
(the "Placement Agency Agreement") pursuant to which the Company and BGDC
have agreed that BGDC will pay to the Placement Agent for its services,
compensation in the form of (a) cash commissions equal to 9% of the gross
proceeds from the Transaction, (b) a non-accountable expense allowance equal
to 4% of the gross proceeds from the Transaction and (c) warrants to acquire
a number of newly issued shares of BGDC Preferred Stock equal to 10% of the
number of shares of BGDC Preferred Stock issued in the Transaction,
exercisable for a period of 10 years from the final closing date of the
Transaction at 110% of the price per share of Preferred Stock sold in the
Transaction.
In addition, upon the final closing date of the Transaction, BGDC and the
Placement Agent will enter into an financial advisory agreement (the "BGDC
Financial Advisory Agreement") whereby the Placement Agent will
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act as the non-exclusive financial advisor to BGDC for a period of 24 months.
Such engagement will provide that the Placement Agent receive (a) a monthly
retainer of $3,000, (b) out-of-pocket expenses and (c) success fees in the
event the Placement Agent or any of its affiliates assists BGDC in connection
with certain financing and strategic transitions. In addition, upon the
execution of the BGDC Financial Advisory Agreement, BGDC will sell to the
Placement Agent and/or its designees, for $.001 per warrant, warrants to
acquire a number of newly issued Units equal to 15% of the Units issued in
the Offering, exercisable for a period of five years commencing six months
after the Final Closing Date at an exercise price equal to 110% of the
initial offering price of the share of Preferred Stock.
Paramount Capital, Inc. ("Paramount") also acted as placement agent for the
Company on its November 1995 private placement (the "1995 Private Placement")
and on its December 1996 private placement (the "1996 Private Placement").
Pursuant to its engagement in connection with the 1995 Private Placement,
Paramount received the right to designate two nominees to the Board of
Directors of the Company; Michael S. Weiss, a Senior Managing Director of
Paramount, and Elliott H. Vernon were subsequently designated and elected to
the Board of Directors. On November 27, 1995, Paramount and the Company
entered into a financial advisory agreement (the "Company Financial Advisory
Agreement") whereby Paramount agreed to act as non-exclusive financial
advisor to the Company and to identify and negotiate potential acquisition
candidates, investments or strategic alliances and pursuant to which
Paramount receives a monthly retainer of $2,500. In connection with the 1996
Private Placement, the parties agreed to extend the Company Financial
Advisory Agreement for an additional eighteen (18) months. Additionally, the
Company will pay a commission to Paramount of 6% of the gross proceeds
received upon any exercise of the Company's outstanding Class A Warrants
which were sold in the 1995 Private Placement and the 1996 Private Placement.
David R. Walner, Associate Director of Paramount and has served as Secretary
of the Company, without compensation, since December 1996.
Paramount is affiliated with certain significant stockholders of the Company,
including the Aries Trust, a Cayman Islands Trust ("Aries Trust"), Aries
Domestic Fund, L.P., a Delaware Corporation ("Aries Domestic") and Dr.
Lindsay A. Rosenwald. Paramount is also affiliated with Paramount Capital
Asset Management, Inc. ("PCAM") which is the investment manager of Aries
Trust and the General Partner of Aries Domestic. Dr. Rosenwald is the sole
stockholder of PCAM. Dr. Rosenwald is also Chairman and Michael S. Weiss is a
Senior Managing Director of Paramount.
In June 1996 the Company entered into an agreement (the "BTI Agreement") with
Binary Therapeutics, Inc. (BTI) under which the Company was granted an option
to acquire BTI. If the Company elects to exercise its option, the agreement
calls for the Company to issue 1,000,000 to 3,000,000 shares of Common Stock
to the BTI stockholders, depending upon the price of the Company's Common
Stock at the date of the closing. Mr. Weiss, a Director of the Company, is a
Director and Secretary of BTI. Aries Trust, Aries Domestic and Dr. Rosenwald
are also stockholders of BTI. Under the BTI Agreement, as amended, the
Company is required to advance to BTI funds to repay $664,000 in indebtedness
in the event that the Company exercises its option to acquire BTI. The
holders of such indebtedness are Aries Trust, Aries Domestic and Dr.
Rosenwald.
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The Company and BTI have agreed to extend the period during which the Company
may exercise its option to acquire BTI by a merger of BTI into a wholly owned
subsidiary of the Company from April 30, 1997 until such time as BTI has
completed human clinical trials of Boronated Porphyrin Compounds (BOPP) at an
agreed upon dose level. The option period was extended at the Company's
request to enable BTI to complete preclinical studies, to commence clinical
trials in humans and to demonstrate that a given dose level of BOPP in humans
would not cause certain adverse events. The Company believes that the
extension of the option will give it greater opportunity to access the
preliminary data resulting from the BOPP preclinical trials and the Phase I
human clinical trials before determining whether to acquire BTI and to
evaluate the possibility of adverse events in human patients. Accordingly,
the Company has determined to defer exercise of the option and the
stockholder vote therewith.
In April 1996, the Board of Directors approved a relocation package for Dr.
H. Laurence Shaw, which included payment of all of Dr. Shaw's relocation
expenses and an interest free bridge loan of $300,000 for Dr. Shaw to use to
acquire a new residence in California. The loan, which was made in May 1997,
was paid back in September 1997. The Company incurred $182,000 in relocation
expenses for Dr. Shaw's move.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and executive
officers, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, Directors and greater than ten percent stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, and reliance by the Company upon such reports and
representations, during the fiscal year ended March 31, 1998, all Section
16(a) requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with.
DESCRIPTION OF COMPANY SECURITIES
AUTHORIZED STOCK
The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock. The following
descriptions of securities is not complete and is qualified in all respects
by the Company's Certificate of Incorporation, as amended, Certificates of
Designations and Warrant Agreements, respectively, the forms of which are
filed as exhibits to the Company's filings with the Commission.
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COMMON STOCK
There are outstanding 11,221,133 shares of Common Stock owned of record by
approximately 400 holders at June 26, 1998. The holders of Common Stock (i)
have equal and ratable rights to dividends from funds legally available
therefor, when, as and if declared by the Board of Directors of the Company;
(ii) are entitled to share ratably in all assets of the Company available for
distribution to holders of Common Stock upon liquidation, dissolution or
winding up of the affairs of the Company; and (iii) do not have preemptive or
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. Each holder of Common Stock is entitled to
one vote per share for all purposes. The Board of Directors is authorized to
issue additional shares of Common Stock within the limits authorized by the
Company's Certificate of Incorporation, as amended, without stockholder
action.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the Board of Directors,
without further vote or action by stockholders, to issue shares of Preferred
Stock in one or more series and to determine the rights, preferences,
privileges and restrictions thereof, including the dividend rights, dividend
rate, conversion rights, voting rights, terms of redemption (including
sinking fund provisions), redemption price or prices, liquidation preferences
and the number of shares constituting any series or the designations of such
series. These rights and privileges could limit the voting power of holders
of Common Stock and restrict their rights to receive dividends or liquidation
proceeds in an adverse manner.
The Company has granted the Board of Directors authority to issue Preferred
Stock and to determine its rights and preferences to eliminate delays
associated with a stockholder vote on specific issuances. The Company
believes that this power to issue Preferred Stock will provide flexibility in
connection with possible corporate transactions. It could also have the
effect, however, of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire, control of the
Company. See "Stockholders' Rights Plan."
The Board of Directors has authorized the issuance of up to 56,250 shares of
Convertible Preferred Stock to be designated as the Company's Series A
Convertible Preferred Stock (the "Convertible Preferred Stock"). There are
outstanding 38,564 shares of Convertible Preferred Stock, owned of record by
30 holders at June 26, 1998. The rights, preferences and characteristics of
the Convertible Preferred Stock are as follows:
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DIVIDENDS
The holders of Convertible Preferred Stock will be entitled to receive
dividends as, when and if declared by the Board of Directors out of funds
legally available therefor. No dividend or distribution, as the case may be,
shall be declared or paid on any junior stock unless first the holders of the
Convertible Preferred Stock are paid a special dividend in the amount of $260
per share, and the same dividend as proposed to be paid to the junior stock
is also paid to the Convertible Preferred Stock. The Company does not intend
to pay cash dividends on the Convertible Preferred Stock or the underlying
Common Stock for the foreseeable future.
CONVERSION
Each share of Convertible Preferred stock may be converted at the option of
the holder at any time after the initial issuance date into Common Stock at a
conversion price of 290.89 shares of Common Stock for each share of
Convertible Preferred Stock.
MANDATORY CONVERSION
The Company has the right to cause the Convertible Preferred Stock to be
converted in whole or in part, on a PRO RATA basis, into shares of Common
Stock if the closing price of the Common Stock exceeds 200% of the conversion
price for at least 20 trading days in any 30 consecutive trading day period.
LIQUIDATION
Upon (i) a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) a sale or other disposition of all or
substantially all of the assets of the Company or (iii) any consolidation,
merger, combination, reorganization or other transaction in which the
Corporation is not the surviving entity or in which shares of Common Stock
constituting in excess of 50% of the voting power of the Corporation are
exchanged for or changed into other stock or securities, cash or any other
property, after payment or provision for payment of the debts and other
liabilities of the Company, the holders of the Convertible Preferred Stock
then outstanding will first be entitled to receive, PRO RATA (on the basis of
the number of shares of the Convertible Preferred Stock then outstanding),
and in preference of the holders of the Common Stock and any other series of
preferred stock, an amount per share equal to $260.00 plus accrued but unpaid
dividends, if any.
VOTING RIGHTS
The holders of the Convertible Preferred Stock have the right at all meetings
of stockholders to the number of votes equal to the number of shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock at
the record date for determination of the stockholders entitled to vote. So
long as a majority of the shares of Convertible Preferred Stock remain
outstanding, the holders of 66.67% of the Convertible Preferred Stock then
outstanding are entitled to approve (i) the
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issuance of any securities of the Company senior to or on parity with the
Convertible Preferred Stock; (ii) any alteration or change in the rights,
preferences or privileges of the Convertible Preferred Stock; and (iii) the
declaration of payment of any dividend on any junior stock or the repurchase
of any junior securities of the Company. Except as provided above or as
required by applicable law, the holders of the Convertible Preferred Stock
will be entitled to vote together with the holders of the Common Stock and
not as a separate class.
CLASS A WARRANTS
EXERCISE PRICE AND TERMS
Each Class A Warrant entitles the holder there of to purchase one share of
Common Stock at a price of $1.00 per share subject to adjustment in
accordance with the adjustment provisions set forth in the Warrant Agreement
summarized below. The Class A Warrants may be exercised upon surrender of
the Class A Warrant certificate on or prior to November 26, 2005 (or, if
redeemed prior thereto, the date immediately preceding the redemption date)
at the offices of the Warrant Agent, with the subscription form on the
reverse side of the Warrant certificate completed as indicated, accompanied
by payment of the full exercise price (by cashier's or certified check
payable to the order of the Warrant Agent, or by wire transfer) for the
number of Class A Warrants being exercised. No fractional shares will be
issued upon the exercise of the Class A Warrants, and the Company will pay
cash in lieu of fractional shares.
ADJUSTMENT
The exercise price and the number of shares of Common Stock purchasable upon
the exercise of the Class A Warrants are subject to adjustments upon the
occurrence of certain events, such as stock dividends or stock splits of the
Common Stock. Additionally, an adjustment would be made in the case of the
reclassification or exchange of the Common Stock, consolidation or merger of
the Company with or into another corporation or sale of all or substantially
all of the assets of the Company, in order to enable Class A Warrant holders
to acquire the kind and number of shares of stock or other securities or
property receivable in such event by holders of the number of shares of
Common Stock that might otherwise have been purchased upon the exercise of
the Class A Warrant. No adjustment to the exercise price of the shares
subject to the Class A Warrants will be made for dividends (other than
dividends in the form of stock), if any, paid on the Common Stock.
REDEMPTION
The Class A Warrants are subject to redemption by the Company at $.10 per
warrant on 60 days' prior written notice provided that the closing bid
quotation for the Common Stock as reported on the AMEX, or on such exchange
on which the Common Stock is then traded, exceeds 400% of the exercise price
per share for 20 consecutive trading days ending three days prior to the date
of redemption.
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WARRANT HOLDER NOT A STOCKHOLDER
The Class A Warrants do not confer upon holders thereof any voting or any
other rights of a stockholder of the Company. The shares of Common Stock
issuable upon exercise of the Class A Warrants in accordance with the terms
thereof will be fully paid and nonassessable.
SETTLEMENT WARRANTS
The Board of Directors authorized the issuance of 309,734 Settlement
Warrants, to be designated as the Company's Series B Warrants, in settlement
of a class-action lawsuit against the Company. Class B Warrants are owned of
record by 588 holders at June 26, 1998.
EXERCISE PRICE AND TERMS
Each Class B Warrants entitles the holder thereof to purchase one share of
Common Stock at a price of $22.00 per share subject to adjustment in
accordance with the adjustment provisions set forth in the Warrant Agreement
summarized below. The Class B Warrants may be exercised at any time prior to
August 11, 2001. No fractional shares will be issued upon the exercise of
the Class B Warrants, and the Company will pay cash in lieu of fractional
shares. After August 12, 2001, the Class B Warrants will become void and of
no value.
ADJUSTMENT
The exercise price and the number of shares of Common Stock purchasable upon
the exercise of the Class B Warrants are subject to adjustments upon the
occurrence of certain events, such as stock dividends or stock splits of the
Common Stock. Additionally, an adjustment would be made in the case of the
reclassification or exchange of the Common Stock, consolidation or merger of
the Company with or into another corporation or sale of all or substantially
all of the assets of the Company, in order to enable Class B Warrant holders
to acquire the kind and number of shares of stock or other securities or
property receivable in such event by holders of the number of shares of
Common Stock that might otherwise have been purchased upon the exercise of
the Class B Warrant. No adjustment to the exercise price of the shares
subject to the Class B Warrants will be made for dividends (other than
dividends in the form of stock), if any, paid on the Common Stock.
WARRANT HOLDER NOT A STOCKHOLDER
The Class B Warrants do not confer upon holders thereof any voting or any
other rights of a stockholder of the Company. The shares of Common Stock
issuable upon exercise of the Class B Warrants in accordance with the terms
thereof will be fully paid and nonassessable.
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STOCKHOLDERS' RIGHTS PLAN
In April 1991, the Company's Board of Directors adopted a stockholders'
rights plan (the "Plan"). The Plan provides for the distribution of
preferred stock purchase rights to common stockholders which separate from
the Common Stock ten business days following: (a) an announcement of an
acquisition by a person (or group) ("Acquiring Party") of 15% or more of the
outstanding shares of Common Stock of the Company, (b) the commencement of a
tender offer or exchange offer for 15% or more of the Common Stock or (c) a
merger or asset sale as defined in the Plan. Under the Plan, certain related
parties are not considered to be an Acquiring Party. In addition, the Plan
was amended in December 1996 to allow the Placement Agent (and affiliates) to
acquire an unlimited amount of the outstanding Common Stock without being
characterized as an Acquiring Party. One right attached to each share of
Common Stock outstanding as of April 15, 1991 and attaches to all shares
issued thereafter. Each right entitles the holder to purchase one
one-hundredth of one share of Series R junior participating cumulative
preferred stock, par value $25.00 per share ("Unit of Preferred Stock"), at
an exercise price of $120 per Unit of Preferred Stock. The Units of
Preferred Stock are non redeemable, voting and are entitled to certain
preferential dividend and liquidation rights. The exercise price and the
number of Units of Preferred Stock issuable are subject to adjustment to
prevent dilution.
If, after the rights have been distributed, the Company is a party to a
business combination or other specifically defined transaction, each right
(other than those held by the Acquiring Party) will entitle the holder to
receive, upon exercise, Units of Preferred Stock or shares of common stock of
the surviving company with a value equal to two times the exercise price of
the right. Alternatively, a majority of the independent Directors of the
Company may direct the Company to exchange all of the then outstanding rights
for Common Stock at an exchange ratio of one share of Common Stock per right.
The rights expire April 15, 2001 and are redeemable (at the option of a
majority of the independent Directors of the Company) at $.01 per right at
any time until the tenth day following an announcement of the acquisition of
15% or more of the Company's Common Stock.
TRANSFER AND WARRANT AGENT
The transfer agent for the Common Stock, Series A Convertible Preferred
Stock, Class A Warrants and Settlement Warrants is the American Stock
Transfer and Trust Company, 6201 15th Avenue, 3rd Floor, Brooklyn, New York
11219.
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DESCRIPTION OF BGDC SECURITIES
AUTHORIZED STOCK
The authorized capital stock of BGDC consists of 25,000,000 shares of Common
Stock, par value $.001, per share (the "BGDC Common Stock"), and 10,000,000
shares of Preferred Stock, par value $.001, per share.
COMMON STOCK
As of June 26, 1998, there are outstanding 7,500,000 shares of BGDC Common
Stock, all owned by the Company. The holders of BGDC Common Stock (i) have
equal and ratable rights to dividends from funds legally available therefor,
when, as and if declared by the Board of Directors of BGDC; (ii) are entitled
to share ratably in all assets of BGDC available for distribution to holders
of BGDC Common Stock upon liquidation, dissolution or winding up of the
affairs of BGDC; and (iii) do not have preemptive or subscription rights.
There are no redemption or sinking fund provisions applicable to the BGDC
Common Stock. Each holder of BGDC Common Stock is entitled to one vote per
share for all purposes. The Board of Directors of BGDC is authorized to issue
additional shares of BGDC Common Stock within the limits authorized by the
BGDC's Certificate of Incorporation, as amended, without stockholder action.
PREFERRED STOCK
BGDC's Certificate of Incorporation authorizes its Board of Directors,
without further vote or action by stockholders, to issue shares of Preferred
Stock in one or more series and to determine the rights, preferences,
privileges and restrictions thereof, including the dividend rights, dividend
rate, conversion rights, voting rights, terms of redemption (including
sinking fund provisions), redemption price or prices, liquidation preferences
and the number of shares constituting any series or the designations of such
series. These rights and privileges could limit the voting power of holders
of BGDC Common Stock and restrict their rights to receive dividends or
liquidation proceeds in an adverse manner.
BGDC has granted the Board of Directors authority to issue Preferred Stock
and to determine its rights and preferences to eliminate delays associated
with a stockholder vote on specific issuances. BGDC has no outstanding
shares of Preferred Stock and no present plans to issue any shares of
Preferred Stock other than the BGDC Preferred Stock described below.
The Board of Directors has authorized the issuance of up to 7,000,000 shares
of Convertible Preferred Stock to be designated as BGDC's Series A
Convertible Preferred Stock (the "BGDC Preferred Stock"). The rights,
preferences and characteristics of the BGDC Preferred Stock are as follows:
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<PAGE>
VOTING RIGHTS
The holders of BGDC Preferred Stock will have the right at all meetings of
its stockholders to that number of votes in respect of such BGDC Preferred
Stock equal to the number of shares of BGDC Common Stock issuable upon
conversion of such shares of BGDC Preferred Stock at the record date for the
determination of the stockholders entitled to vote on matters or, if no such
record date is established, at the date such vote is taken. Unless otherwise
expressly provided by the Certificate of Incorporation or required by
applicable law, the holders of Preferred Stock will vote together with the
holders of BGDC Common Stock and not as a separate class.
In addition, any amendment to the Certificate of Incorporation of BGDC that
(a) adversely affects the conversion terms of the BGDC Preferred Stock or (b)
creates a class of capital stock that has rights senior to the BGDC Preferred
Stock upon a Liquidation Event (as defined below) or a Merger Event (as
defined below) or with respect to voting power (as to matters other than
relating solely to such class of capital stock), shall require the approval
of the holders of a majority of the BGDC Preferred Stock, except that BGDC
may issue additional shares of BGDC Preferred Stock and/or preferred stock
with rights similar to those of the BGDC Preferred Stock.
DIVIDENDS
At all times while the BGDC Preferred Stock remains outstanding, the BGDC
Preferred Stock shall accrue dividends (the "Preferred Dividends") payable
out of funds legally available therefor as follows:
<TABLE>
<CAPTION>
DIVIDEND DATE DIVIDEND AMOUNT
<S> <C>
On the date of the final closing date of the
Transaction (the "Final Closing Date")........................... $1.99 per share
On the date that is 30 months from the Final Closing Date........... $0.82 per share
On the date that is 36 months from the Final Closing Date........... $0.82 per share
On the date that is 42 months from the Final Closing Date........... $1.16 per share
On the date that is 48 months from the Final Closing Date........... $1.16 per share
</TABLE>
Thereafter, at all times while the BGDC Preferred Stock remains outstanding,
the holders of BGDC Preferred Stock shall be entitled to receive an annual
dividend at an annual rate of 35%, compounded monthly.
The Preferred Dividends shall be payable only when, as and if declared by the
Board of Directors. The Board of Directors does not presently intend to
declare or pay any Preferred Dividends. Preferred Dividends not declared and
paid when due shall accrue, accumulate and be included in the liquidation
preference of the BGDC Preferred Stock and shall be canceled upon conversion.
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<PAGE>
In addition to the foregoing, the holders of the BGDC Preferred Stock shall
be entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. BGDC shall not declare
any dividend or distribution on any securities ranking junior to the BGDC
Preferred Stock ("Junior Stock") unless and until a special dividend equal to
the Liquidation Amount has been declared and paid on the BGDC Preferred Stock
and all accrued and unpaid dividends have been paid on the BGDC Preferred
Stock.
CONVERSION
The BGDC Preferred Stock may be converted at the option of the holder at any
time after the initial issuance date of the BGDC Preferred Stock at the then
applicable Conversion Price for fully paid and nonassessable shares of BGDC
Common Stock. The Conversion Price of the BGDC Preferred Stock, initially
$2.00 per share of Common Stock, is subject to adjustment upon the occurrence
of issuances of securities at below market price or below the Conversion
Price, a merger, reorganization, consolidation, reclassification, stock
dividend or stock split which will result in an increase or decrease in the
number of shares of BGDC Common Stock outstanding.
The BGDC Preferred Stock shall be automatically converted into BGDC Common
Stock on the date (the "Conversion Date") that is six months after the first
date (the "Trading Date") on which the BGDC Common Stock (or securities
received by all holders of BGDC Common Stock in exchange for BGDC Common
Stock) trades on a national securities exchange or on the National
Association of Securities Dealers, Inc. Automated Quotation System
(collectively "NASDAQ") (a "Trading Event"). The Conversion Price will be
adjusted downward if the Trading Price (as defined below) as of the
Conversion Date is less than the then applicable Liquidation Amount per share
(an "Adjustment Event") so that upon an Adjustment Event, each share of BGDC
Preferred Stock shall be automatically converted into shares of BGDC Common
Stock at a Conversion Price equal the greater of (a) the Trading Price
divided by the applicable Return Factor (as defined below) and (b) 25% of the
then applicable Conversion Price.
The "Return Factor" shall equal the quotient obtained by dividing (x) the
Liquidation Amount per share by (y) the per share stated value of the BGDC
Preferred Stock. The "Trading Price" shall mean the lower of (i) the average
closing bid price of the Common Stock (with appropriate adjustments for
subdivisions or combinations of shares effected during such period) for 30
consecutive trading days, ending with the trading day prior to the date as of
which the Trading Price is being determined, and (ii) the average closing bid
price of the Common Stock (with appropriate adjustments for subdivisions or
combinations of shares effected during such period) for five consecutive
trading days, ending with the trading day prior to the date as of which the
Trading Price is being determined, provided that if the prices referred to in
the definition of closing bid price cannot be determined for any of such
periods, "Trading Price" shall mean Fair Market Value (as defined Certificate
of Designation attached hereto as Exhibit B).
In addition, each share of BGDC Preferred Stock shall be automatically
converted immediately prior to an underwritten initial public offering of
BGDC Common Stock in which gross proceeds to
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<PAGE>
BGDC exceed $5,000,000 (a "Qualified IPO") pursuant to an effective
registration statement under the Securities Act (a "Reset Event") on the date
of the Reset Event (the "Reset Date") at a conversion price that will ensure,
subject to the limitations described below, that each share of BGDC Preferred
Stock is convertible into that number of shares of BGDC Common Stock such
that when multiplied by the Reset Price (as defined below), each share of
Preferred Stock shall be valued at least at the Liquidation Amount (subject
to equitable adjustments for stock splits and other similar events).
Accordingly, the aggregate number of shares of BGDC Common Stock issuable
upon conversion of the BGDC Preferred Stock is subject to adjustment (the
"Reset Adjustment") at the time of the Reset Event, if the PMV (as defined
below) is less than the Minimum Value (as defined below). In such event, the
conversion ration of the BGDC Preferred Stock shall be increased to equal a
ratio that will provide that the issued and outstanding shares of BGDC
Preferred Stock (assuming exercise or conversion of the Preferred Stock
Equivalents (as defined below) into shares of BGDC Preferred Stock) shall in
the aggregate be convertible into a number of shares of BGDC Common Stock
equal to the product of (A) the Pre-Reset Shares (as defined below) times (B)
a fraction, the numerator which is the Aggregate Liquidation Amount (as
defined below) and the denominator of which is the PMV. No adjustment shall
be made if the PMV is greater than the Minimum Value.
Any Reset Adjustment will be subject to the limitations that (a) in no event
shall the adjusted conversion ratio entitle the holders of the BGDC Preferred
Stock to hold in excess of 80% of the Pre-Reset Shares and (b) BGDC may offer
similar (but not more favorable) protection to investors in a Subsequent
Offering without the consent of the holders of the BGDC Preferred Stock
provided that any reduction in the Pre-Reset Shares allocable to the holders
of the BGDC Preferred Stock or the holders of the Subsequent offering
Securities (as defined below), as the case may be, are allocated FIRST from
the Pre-Reset Shares to be allocated to the holders of BGDC Common Stock and
BGDC Common Stock Equivalents (but subject to the 80% limitation described in
(a) above) and SECONDLY out of the Pre-Reset Shares to be held by the holders
of the Preferred Stock or the holders of the Subsequent Offering Securities,
as the case may be, PRO RATA based upon the relative amounts of the Offering
Amount and the Subsequent Offering Amount.
For purposes of the foregoing:
(A) "The Aggregate Liquidation Amount" shall mean the aggregate Liquidation
Amount of outstanding shares of BGDC Preferred Stock (assuming exercise or
conversion of all Preferred Stock Equivalents into BGDC Preferred Stock);
(B) "BGDC Common Stock Equivalents" shall mean all securities exercisable
for or convertible into, directly or indirectly, shares of BGDC Common
Stock excluding shares issuable upon conversion of the BGDC Preferred Stock
and Preferred Stock Equivalents or any Subsequent Offering Securities;
(C) "Unadjusted Percentage" shall mean the quotient of (1) all shares of
BGDC Common Stock issuable upon the exercise and/or conversion of all BGDC
Preferred Stock and Preferred Stock Equivalents, prior to any adjustments
as a result of a Reset Event, divided
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<PAGE>
by (2) all outstanding shares of BGDC Common Stock and all shares of BGDC
Common Stock issuable upon the exercise or conversion of all outstanding
BGDC Common Stock Equivalents plus all shares of BGDC Common Stock issuable
upon conversion of the BGDC Preferred Stock and Preferred Stock
Equivalents, in each case prior to any adjustments as a result of the Reset
Event;
(D) "Minimum Value" shall mean the quotient obtained by dividing (1) the
sum of the Aggregate Liquidation Amount by (2) the Unadjusted Percentage;
(E) "Pre-Reset Shares" shall mean the aggregate number of shares of BGDC
Common Stock outstanding on a fully diluted basis (assuming the exercise
or conversion of all BGDC Common Stock Equivalents and including shares
of BGDC Common Stock issuable upon conversion of the BGDC Preferred Stock
and Preferred Stock Equivalents or any Subsequent Offering Securities)
upon the effectiveness of the Reset Event, but excluding shares of BGDC
Common Stock and BGDC Common Stock Equivalents issued in or at the time
of the Reset Event as a result of a Reset Event;
(F) "Preferred Stock Equivalents" shall mean all securities exercisable
for, or convertible into, shares of BGDC Preferred Stock;
(G) "PMV" shall be equal to the aggregate value of the Pre-Reset Shares
determined by multiplying the number of Pre-Reset Shares by the Reset
Price;
(H) "Reset Price' shall mean the per share public offering price of the
BGDC Common Stock sold in the Qualified IPO. If units of BGDC Common
Stock and other securities are issued in the Qualified IPO, the Board of
Directors of BGDC shall in good faith allocate value to the BGDC Common
Stock based on the relative historical values of similar unit offerings
conducted by the same and/or similar underwriters;
(I) "Offering Amount" shall mean the gross amount of proceeds to BGDC
from sales of the then outstanding shares of Preferred Stock ($2.00 per
share in the case of the Transaction) plus any other amounts receivable
by BGDC in connection with the issuance of shares of the BGDC Preferred
Stock upon conversion or exercise of any then outstanding securities
convertible or exercisable, directly or indirectly, for the BGDC
Preferred Stock;
(J) "Subsequent Offering" shall mean any private financing of debt
securities or series of preferred stock of BGDC that shall in each case
by convertible, directly or indirectly, into shares of BGDC Common Stock
which shall be consummated by BGDC prior to the Qualified IPO;
(K) "Subsequent Offering Amount" shall mean the gross amount of proceeds
or other amounts received or receivable by BGDC in any Subsequent
Offering of Subsequent Offering Securities; and
29
<PAGE>
(L) "Subsequent Offering Securities" shall mean the convertible debt
securities or convertible preferred stock of BGDC issued in any
Subsequent Offering that have the Reset Event protection.
LIQUIDATION PREFERENCE
Upon a liquidation, dissolution or winding up of BGDC, whether voluntary or
involuntary (a "Liquidation Event"), after payment or provision for payment
of the debts and other liabilities of BGDC, subject to the prior and superior
rights of the holders of any shares of any series or class of capital stock
ranking prior and superior to the shares of the BGDC Preferred Stock with
respect to liquidation, holders of the BGDC Preferred Stock will receive, PRO
RATA (on the basis of the number of shares of Preferred Stock then
outstanding), in preference to the holders of all other series of preferred
stock (other than shares of preferred stock that are pari passu with the BGDC
Preferred Stock) and BGDC Common Stock, $2.00 per share (subject to
appropriate adjustments for stock splits and other similar events) plus
declared but unpaid dividends, if any, and all accrued but unpaid Preferred
Dividends (collectively, the "Liquidation Amount"). Similar treatment for
the holders of the BGDC Preferred Stock will be provided upon (a) any
consolidation, merger, combination, reorganization or other transaction in
which BGDC is not the surviving entity or the shares of BGDC Common Stock
constituting in excess of 50% of the voting power of BGDC are exchanged for
or changed into other stock or securities (other than pursuant to the
Exchange Right described below), cash and/or any other property or (b) a sale
or other disposition of all or substantially all of the assets of BGDC (any
of the foregoing a "Merger Event"). The Liquidation Amount is payable in
cash or securities.
EXCHANGE RIGHT
To the extent that any shares of BGDC Preferred Stock are outstanding on the
date that is one year following the Final Closing Date (the "Initial Exchange
Date"), then, (i) for the 60 day period thereafter, the holders of BGDC
Preferred Stock will have the right to put their shares of BGDC Preferred
Stock, if any, to Pacific Pharmaceuticals, Inc. for $2.00 per share, and (ii)
for the 60-day period following the one year anniversary of the Initial
Exchange Date (the "Final Exchange Date"), each holder of the BGDC Preferred
Stock would have the right to put their shares of BGDC Preferred Stock to the
Company for $3.99 per share (in each case subject to adjustments for stock
splits and other similar events) (in either case the "Exchange
Purchase Price").
The Exchange Purchase Price may be paid in cash, Company Common Stock or any
combination thereof, at the Company's sole discretion, within 60 days after
the holder's exercise of the Put right. In the event that the Company elects
to pay the Purchase Price in shares of Company Common Stock ("Exchange
Shares"), the number of Exchange Shares to be delivered will be determined by
dividing (a) that portion of the Exchange Purchase Price to be paid in
Exchange Shares by (b) the average closing price of Company's Common Stock
for the 30 consecutive trading days immediately preceding the Initial
Exchange Date or the Final Exchange Date, as the case may be, the principal
national securities exchange on which Company's Common Stock is admitted to
trading or listed, or if not listed or admitted to trading on any such
exchange, the closing bid price of Company Common Stock as reported by the
NASDAQ, or other
30
<PAGE>
similar organization if NASDAQ is no longer reporting such information, or,
if the Company's Common Stock is not reported on NASDAQ, the closing bid
price for the Company's Common Stock in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or if not
so available, the fair market value of the Company's Common Stock as
determined in good faith between the Board of Directors of the Company and
the holders of a majority of the BGDC Preferred Stock then outstanding.
REDEMPTION
BGDC shall have the right at any time following the date of issuance of the
BGDC Preferred Stock to redeem the BGDC Preferred Stock in whole, but not in
part, upon not less than 30 days nor more than 60 days written notice, at a
price equal to the Liquidation Amount. The Holders of the BGDC Preferred
Stock will have the right, on or prior to the redemption date specified in
the written notice by BGDC, to convert each share of the BGDC Preferred Stock
into shares of the BGDC Common Stock at the then applicable conversion ratio.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders which are intended to be presented at the 1999
Annual Meeting must be consistent with the regulations of the SEC and
received by the Company at its principal executive offices not later than
February 28, 1999 for inclusion in the Company's proxy materials for that
meeting. Such proposals should be directed to Pacific Pharmaceuticals, Inc.,
Attention: Investor Relations, at the address shown on Page 1.
OTHER BUSINESS
At the date of this Proxy Statement, the Company knows of no other matters to
be brought before the Meeting. If other matters should properly come before
the Meeting, it is the intention of each person mentioned in the proxy to
vote such proxy in accordance with his judgment of such matters.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed proxy.
REQUEST TO VOTE, SIGN AND RETURN PROXIES
PLEASE VOTE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AT YOUR EARLIEST CONVENIENCE.
DATED: JULY 8, 1998
BY ORDER OF THE BOARD OF DIRECTORS
BY: /s/ H. LAURENCE SHAW, M.D.
-----------------------------------
H. LAURENCE SHAW, M.D.
31
<PAGE>
PACIFIC PHARMACEUTICALS, INC.
PROXY
ANNUAL MEETING, AUGUST 13, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints H. Laurence Shaw and James Hertzog as
Proxies, each with full power to appoint his substitute, and hereby
authorizes them to appear and vote as designated below, all shares of Common
Stock and Series A Convertible Preferred Stock of Pacific Pharmaceuticals,
Inc. held on record by the undersigned on June 26, 1998, at the Annual
Meeting of Stockholders to be held on August 13, 1998, and any adjournment
thereof.
The undersigned hereby directs this proxy to be voted:
Please mark your
vote as in this example: / X /
1. Election of Directors Nominees: H. Laurence Shaw
Jack Halperin
John G. Kringel
Elliott H. Vernon
Robert A. Vukovich
Michael S. Weiss
WITHHOLD
FOR ALL ALL WITHHOLD
NOMINEES NOMINEES AUTHORITY
/ / / / / /
For, except vote withheld from the following nominee(s):
______________________________________________________
2. To authorize the Company to enter into agreements, in connection with a
private placement financing by the Company and the Company's subsidiary,
BG Development Corp. ("BGDC"), to exchange shares of BGDC Convertible
Preferred Stock for shares of the Company's Common Stock under certain
circumstances.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify the Board of Directors' selection of Deloitte & Touche LLP as the
Company's independent public accountants for the year ended March 31, 1999.
FOR AGAINST ABSTAIN
/ / / / / /
4. To consider and act on such other business as may properly be presented at
the Meeting.
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)
In their discretion, the named Proxies may vote on such other business
as may properly come before the Annual Meeting, or any adjournments or
postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTIONS IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
<PAGE>
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN
ACCORDANCE WITH THE STOCKHOLDER'S DIRECTIONS ABOVE. THE PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOW OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS TO
THE UNDERSIGNED.
___________________________________
Date
___________________________________
Signature of stockholder
___________________________________
Signature if held jointly
Note: PLEASE MARK, DATE, SIGN AND RETURN
THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. If signing as attorney,
executor, administrator, trustee or
guardian, please give full title. If a
corporation or partnership, please sign
in corporate or partnership name by an
authorized person.
