<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ALLIANCE PHARMACEUTICAL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
1
<PAGE>
ALLIANCE PHARMACEUTICAL CORP.
3040 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
-----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
-----------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Alliance Pharmaceutical Corp. (the "Corporation") will be held at 10:00 a.m. on
Friday, December 10, 1999, at offices of the Corporation at 6175 Lusk Boulevard,
San Diego, California 92121 for the following purposes:
1. To elect nine directors of the Corporation.
2. To approve a 2,100,000 share increase in the number of
shares authorized for issuance under the 1991 Stock Option
Plan of Alliance Pharmaceutical Corp.
3. To ratify the appointment by the Corporation's Board of
Directors of Ernst & Young LLP as independent auditors of
the Corporation for its fiscal year ending June 30, 2000.
4. To transact such other business as may properly come before
the annual meeting and any adjournments thereof.
Only holders of record of the Corporation's Common Stock and its Series
D Preferred Stock at the close of business on October 22, 1999, are entitled to
notice of, and to vote at, the meeting and any adjournments thereof. Such
shareholders may vote in person or by proxy. The stock transfer books of the
Corporation will not be closed.
Shareholders are urged to attend the meeting in person. If you are not
able to do so and wish that your shares be voted, please sign, date and return
the accompanying proxy in the enclosed envelope. No postage is required if
mailed in the United States.
By Order of the Board of Directors,
DUANE J. ROTH, CHAIRMAN
Dated: November 5, 1999
<PAGE>
ALLIANCE PHARMACEUTICAL CORP.
3040 SCIENCE PARK ROAD
SAN DIEGO, CA 92121
-----------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
December 10, 1999
-----------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Alliance Pharmaceutical Corp. (the
"Corporation") to be voted at the Annual Meeting of Shareholders to be held on
Friday, December 10, 1999, at 10:00 a.m. at offices of the Corporation at 6175
Lusk Boulevard, San Diego, California 92121 and at any adjournment or
adjournments thereof (the "Meeting") for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders.
The mailing address of the principal executive offices of the
Corporation is 3040 Science Park Road, San Diego, CA 92121 (telephone number
858/410-5200). The enclosed Proxy and this Proxy Statement are being first sent
to shareholders of the Corporation on or about November 5, 1999.
The Board of Directors has fixed the close of business on October 22,
1999 as the record date for the determination of shareholders of the Corporation
entitled to receive notice of, and vote at, the Meeting. At the close of
business on the record date, an aggregate of 43,513,911 shares of common stock,
par value $.01 per share, of the Corporation (the "Common Stock") and 500,000
shares of Series D Preferred Stock, par value $.01 per share, of the Corporation
(the "D Stock") were issued and outstanding. A share of Common Stock and a share
of D Stock are each entitled to one vote on each matter to be voted upon at the
Meeting. The Common Stock and D Stock vote together as one class.
All votes will be tabulated by the inspector of election appointed for
the Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the shareholders and will
have the same effect as negative votes. Broker non-votes are not counted for any
purpose in determining whether a matter has been approved.
SOLICITATION AND REVOCATION
PROXIES IN THE FORM ENCLOSED ARE SOLICITED BY, OR ON BEHALF OF, THE
BOARD OF DIRECTORS OF THE CORPORATION. THE PERSONS NAMED IN THE PROXY HAVE BEEN
DESIGNATED AS PROXIES BY THE BOARD OF DIRECTORS. Shares represented by properly
executed proxies received by the Corporation will be voted at the Meeting in the
manner specified therein or, if no specification is made, will be voted FOR the
election of the nine directors listed herein, FOR an increase in the number of
shares of Common Stock authorized for issuance under the Corporation's 1991
Stock Option Plan, and FOR the ratification of the appointment by the
Corporation's Board of Directors of Ernst & Young LLP as independent auditors of
the Corporation for its fiscal year ending June 30, 2000, all as described in
this Proxy Statement.
Any proxy given by a shareholder pursuant to this solicitation may be
revoked by the shareholder at any time before it is exercised, by written
notification delivered to the Secretary of the Corporation, by voting in person
at the Meeting, or by executing another proxy bearing a later date.
Proxies will be solicited by mail. They may also be solicited by
officers and regular employees of the Corporation personally, by telephone or
otherwise, but such persons will not be specifically compensated for such
services. The
1
<PAGE>
Corporation may use the services of Georgeson Shareholder Communications Inc. to
aid in the solicitation of proxies. The Corporation estimates that the fee for
such services should not exceed $3,500. Banks, brokers, nominees, and other
custodians and fiduciaries will be reimbursed for their reasonable out-of-pocket
expenses in forwarding soliciting material to their principals, the beneficial
owners of Common Stock. The costs of soliciting proxies will be borne by the
Corporation.
1. ELECTION OF DIRECTORS
Nine directors are to be elected at the Meeting to hold office until
the next annual meeting of shareholders and until the election and qualification
of their respective successors. The Board of Directors has nominated Pedro
Cuatrecasas, M.D., Carroll O. Johnson, Stephen M. McGrath, Donald E. O'Neill,
Helen M. Ranney, M.D., Duane J. Roth, Theodore D. Roth, Jean G. Riess, Ph.D.,
and Thomas F. Zuck, M.D., all of whom are currently directors of the
Corporation. Directors are elected by a plurality vote.
Unless otherwise specified in the accompanying proxy, the shares voted
pursuant thereto will be cast for these nominees. If, for any reason, any of the
nominees should be unable to accept nomination or election, it is intended that
such proxy will be voted for the election, in his or her place, of a substituted
nominee who would be recommended by management. Management, however, has no
reason to believe that any nominee will be unable to serve as a director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Set forth below is certain information with respect to each nominee as
of October 18, 1999:
DUANE J. ROTH. Mr. Roth is 49 and has served as a director of the
Corporation since 1985. He has served as Chief Executive Officer of the
Corporation since 1985 and as Chairman since October 1989. Prior to joining the
Corporation, Mr. Roth served as President of Analytab Products, Inc., an
American Home Products company involved in manufacturing and marketing medical
diagnostics, pharmaceuticals and devices. For the previous ten years, he was
employed in various sales, marketing and general management capacities with
Ortho Diagnostic Systems, Inc., a Johnson & Johnson company, which is a
manufacturer of diagnostic and pharmaceutical products. Mr. Roth's brother,
Theodore D. Roth, is President and Chief Operating Officer of the Corporation.
THEODORE D. ROTH. Mr. Roth is 48 and served as Executive Vice President
and Chief Financial Officer of the Corporation since November 1987, and was
appointed President and Chief Operating Officer in May 1998. For more than ten
years prior to joining the Corporation, he was General Counsel of SAI
Corporation, a company in the business of operating manufacturing concerns, and
General Manager of Holland Industries, Inc., a manufacturing company. Mr. Roth
received his J.D. from Washburn University and an LL.M. in Corporate and
Commercial Law from the University of Missouri in Kansas City. He is the brother
of Duane J. Roth, the Chairman and Chief Executive Officer of the Corporation.
PEDRO CUATRECASAS, M.D. Dr. Cuatrecasas is 63 and was elected as a
director of the Corporation in August 1996. He has over 20 years of experience
in the pharmaceutical industry. Dr. Cuatrecasas retired from the positions of
Vice President of Warner-Lambert Company and President, Parke-Davis
Pharmaceutical Research on December 31, 1996, positions he had held since 1989.
During the previous four years, he had been Senior Vice President of Research
and Development and Director of Glaxo, Inc. For the prior ten years, he was Vice
President of Research, Development and Medical at Burroughs Wellcome Company.
Dr. Cuatrecasas is a member of the National Academy of Sciences and the
Institute of Medicine. He is currently a director of Mitokor Corp. and an
independent consultant in pharmaceutical research. He received his M.D. from
Washington University School of Medicine.
CARROLL O. JOHNSON. Mr. Johnson is 66 and has served as a director of
the Corporation since 1989. He has been President of Research Management, Inc.
("RMI") since 1985, an independent contract research organization which provides
services to the pharmaceutical industry in the implementation of clinical
trials. Previously, he served for 25 years in various research, sales and
marketing positions with several pharmaceutical companies, including Pharmacia
Laboratories, Inc., where he created a national sales force which introduced
three major products.
2
<PAGE>
STEPHEN M. MCGRATH. Mr. McGrath is 63 and has served as a director of
the Corporation since 1989. On May 1, 1998, he retired as Executive Vice
President of CIBC Oppenheimer & Co., Inc. ("Oppenheimer") and as the Director of
its Corporate Finance Department. For the eleven years prior to his employment
by Oppenheimer in 1983, he held various executive positions with Warner-Lambert
Company. Before joining Warner-Lambert, Mr. McGrath was Controller and Assistant
Treasurer of Sterling Drug, Inc. and a certified public accountant for Price
Waterhouse & Co. He is a director of PetroCorp, Inc.
DONALD E. O'NEILL. Mr. O'Neill is 73 and has served as a director of
the Corporation since 1991. He retired from Warner-Lambert Company in 1991 after
20 years of service. During his tenure, he held various managerial positions,
including President of the Parke-Davis Group, President of the Health
Technologies Group and President - International Operations. At the time of his
retirement from Warner-Lambert, he held the offices of Executive Vice President
of the company, and President and Chairman of its International Operations, and
was a member of Warner-Lambert's board of directors. He is a director of Fuisz
Technologies.
HELEN M. RANNEY, M.D. Dr. Ranney is 79 and has served as a director of
the Corporation since 1991. She is Professor EMERITA, Department of Medicine,
University of California at San Diego, having served as Chairman of the
Department from 1973 through 1986. From 1986 through 1991, she was Distinguished
Physician of the U.S. Department of Veterans Affairs. She formerly was Professor
of Medicine at Albert Einstein College of Medicine (New York) and at the State
University of New York, Buffalo. Dr. Ranney is a member of many professional
societies, including the National Academy of Sciences, the Institute of
Medicine, the Association of American Physicians (past President), and the
American Society of Hematology (past President). She has more than 150
publications, primarily relating to blood and blood disorders. Dr. Ranney served
on the Board of Directors of Squibb Corp. prior to its merger with
Bristol-Myers. She received her M.D. from the College of Physicians and
Surgeons, Columbia University.
JEAN G. RIESS, PH.D. Professor Riess is 62 and has served as a director
of the Corporation since 1989. Until his retirement in 1996, he had been the
Director of Laboratoire de Chimie Moleculaire at the University of Nice for over
20 years. He has been an active researcher since receiving a Ph.D. from the
University of Strasbourg, with numerous patents and over 300 publications. For
more than 20 years, Dr. Riess has focused on chemistry related to
perfluorochemical emulsions for medical application. He has directed research in
synthesis of tailored perfluorochemicals, in emulsion technology, in synthesis
of fluorinated surfactants, in the physical chemistry of emulsion stabilization,
and in surfactant self-aggregation.
THOMAS F. ZUCK, M.D. Dr. Zuck is 65 and has served as a director of the
Corporation since 1990. He is Professor of Transfusion Medicine and Director of
Hoxworth Blood Center at the University of Cincinnati Medical Center and is
President of Ohio Enterprises International, Inc. ("OEI"), a consulting company.
Dr. Zuck formerly was director of the Division of Blood and Blood Products at
the Office of Biologics Research & Review within the U.S. Food and Drug
Administration. He has served in numerous scientific professional societies,
including as President of the American Association of Blood Banks and the
Council of Community Blood Centers. He was Editor-in-Chief of the journal
TRANSFUSION and has more than 100 publications to his credit. Dr. Zuck is a
retired U.S. Army Colonel, where he was a Commander of the Letterman Army
Institute of Research and, for many years, involved with the Army's blood
substitute development program. Dr. Zuck received his LL.B. from Yale Law School
and his M.D. from Hahnemann Medical College.
COMPENSATION OF DIRECTORS
Directors do not receive cash compensation for attendance at Board of
Directors' meetings or committee meetings. Non-qualified stock options are
awarded to nonemployee directors of the Corporation pursuant to the Formula
Stock Option Plan for Nonemployee Directors of the Corporation (the "Directors'
Formula Option Plan"). Options under the Directors' Formula Option Plan are
granted under and subject to the Corporation's 1991 Stock Option Plan. The
options have a term of ten years from the date of grant and are exercisable at a
price per share equal to the fair market value of a share of Common Stock on the
date of grant. Each nonemployee director (i) upon his or her initial election,
shall automatically be granted an option to acquire 25,000 shares of Common
Stock which shall be exercisable in four installments of 6,250 shares each with
the first installment being at his or her initial election and the remaining
installments becoming exercisable on the date of each annual meeting of the
Board of Directors of the Corporation ("Annual Meeting") thereafter that such
person is a director, until fully exercisable, and (ii) upon the third Annual
Meeting following his or her initial election and
3
<PAGE>
each Annual Meeting thereafter that such person remains a nonemployee director,
shall automatically be granted an option to acquire 7,500 shares of Common
Stock. Except as otherwise described above, all options are immediately
exercisable in full on the date of grant.
OTHER TRANSACTIONS
The following affiliations exist between the Corporation and certain
directors:
In December 1998, the Corporation renewed a one-year research services
agreement with RMI for $2,000 per month, plus $500 per day for each day per
month in excess of four days Mr. Johnson devotes to consulting for the
Corporation. Mr. Johnson is the president and owner of RMI. RMI received $43,000
for consulting services in the fiscal year ended June 30, 1999.
In December 1998, the Corporation renewed a one-year consulting
agreement with OEI for $2,000 per month. Dr. Zuck is the president and owner of
OEI.
Dr. Ranney receives $2,000 per month and office space for providing
consulting services to the Corporation.
In return for the rights to certain inventions and concepts, the
Corporation paid Dr. Reiss $160,000 in October 1998.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
The standing committees of the Board of Directors consist of an
Executive Committee, a Compensation Committee, an Audit Committee, and a
Nominating Committee. The Executive Committee was established to act when the
full Board of Directors is unavailable. It has all the authority of the Board
between meetings of the entire Board as to matters which have not been
specifically delegated to other committees of the Board, except the authority
that by law cannot be delegated by the Board of Directors. The members of the
Executive Committee are Dr. Ranney and Messrs. McGrath and D. Roth. The
Compensation Committee advises and makes recommendations to the Board of
Directors regarding matters relating to the compensation of directors, officers,
and senior management. The members of the Compensation Committee are Drs. Ranney
and Cuatrecasas and Messrs. O'Neill and McGrath. The Audit Committee advises and
makes recommendations to the Board concerning the internal controls of the
Corporation, the independent auditors of the Corporation, and other matters
relating to the financial activities of the Corporation. The members of the
Audit Committee are Messrs. Johnson and McGrath and Dr. Zuck. The Nominating
Committee has the authority to nominate members of the Board of Directors to the
entire Board for consideration. The Nominating Committee will not consider
nominees recommended by shareholders. The members of the Nominating Committee
are Dr. Riess, Messrs. Johnson, D. Roth and T. Roth.
During the fiscal year ended June 30, 1999, there were four regular
meetings of the Board of Directors. The Compensation Committee held two
meetings, the Audit Committee held one meeting, the Nominating Committee held
one meeting, and the Executive Committee did not meet. Each Board member
attended more than 75% of the meetings of the Board and all of the meetings of
the committee(s) of which he or she is a member.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors, executive officers and persons who own more than 10% of
a registered class of the Corporation's equity securities to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Corporation. Officers, directors and greater than 10% stockholders are
required by SEC regulations to furnish the Corporation with copies of all
Section 16(a) forms they file.
To the Corporation's knowledge, based solely on a review of the copies
of such reports furnished to the Corporation during the fiscal year ended June
30, 1999, two reports, covering five transactions were filed late on behalf of
Dr. Cuatrecasas, and one report, covering one transaction was filed late on
behalf of Dr. Riess.
4
<PAGE>
OWNERSHIP OF VOTING SECURITIES BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Corporation's voting securities as of October 18,
1999 as to (i) each of the directors and director nominees, (ii) each of the
executive officers listed in the Summary Compensation Table, (iii) each person
known by the Corporation to own more than 5% of any class of the Corporation's
outstanding voting securities, and (iv) all directors and executive officers of
the Corporation as a group:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock
Amount and Nature of Percentage of
Name and Address Beneficial Ownership (1) Class (2)
- ---------------- ------------------------ ---------
<S> <C> <C>
Duane J. Roth 791,463 (3) 1.8%
Pedro Cuatrecasas, M.D. 115,500 (4) *
Carroll O. Johnson 62,000 (5) *
Stephen M. McGrath 261,516 (6) *
Donald E. O'Neill 95,500 (7) *
Helen M. Ranney, M.D. 75,400 (8) *
Jean G. Riess, Ph.D. 160,233 (9) *
Theodore D. Roth 297,492 (10) *
Thomas F. Zuck, M.D. 62,500 (11) *
Harold W. DeLong 220,300 (12) *
N. Simon Faithfull, M.D., Ph.D. 140,750 (13) *
H. Joerg Limmer, D.V.M. 42,500 (14) *
All directors and executive officers as a group (20 persons) 2,738,722 6.0%
Wellington Management Company, LLP 4,657,788 (15) 10.7%
75 State Street
Boston, MA 02109
Fidelity Management and Research Company 4,190,400 (16) 9.6%
82 Devonshire Street
Boston, MA 02109
Vanguard Healthcare Fund 2,467,688 (17) 5.7%
P.O. Box 2600, V15
Valley Forge, PA 19482
Series D Preferred Stock
Schering Berlin Venture Corp. 500,000 (18) 100%
Schering AG
Muellerstrasse 173
13342 Berlin
Germany
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Indicates ownership of less than 1% of outstanding shares.
(1) Each person listed or included in the group has sole voting power and sole
investment power with respect to the shares owned by such person, except as
indicated below.
(2) Shares subject to options and warrants exercisable within 60 days are
deemed to be outstanding for percentage calculations with respect to the
person holding such options and warrants.
(3) Consists of (i) 293,778 shares owned by Mr. D. Roth, (ii) 495,400 shares
subject to options granted by the Corporation under its 1991 Stock Option
Plan ("the 1991 Plan"), and (iii) 2,285 shares owned by Mr. Roth's spouse.
5
<PAGE>
(4) Consists of (i) 73,000 shares owned by Dr. Cuatrecasas, and (ii) 42,500
shares subject to options granted by the Corporation under the 1991 Plan.
(5) Consists of (i) 4,000 shares owned by Mr. Johnson, and (ii) 58,000 shares
subject to options granted by the Corporation under the 1991 Plan.
(6) Consists of (i) 78,000 shares owned by Mr. McGrath, (ii) 43,016 shares
subject to warrants, (iii) 40,500 shares subject to options granted by the
Corporation under the 1991 Plan, and (iv) 100,000 shares subject to
convertible subordinated debentures.
(7) Consists of (i) 25,000 shares owned by Mr. O'Neill, (ii) 68,500 shares
subject to options granted by the Corporation under the 1991 Plan, and
(iii) 2,000 shares owned by Mr. O'Neill's spouse.
(8) Consists of (i) 6,900 shares owned by Dr. Ranney, and (ii) 68,500 shares
subject to options granted by the Corporation under the 1991 Plan.
(9) Consists of (i) 79,733 shares owned by Dr. Riess, and (ii) 80,500 shares
subject to options granted by the Corporation under the 1991 Plan.
(10) Consists of (i) 49,492 shares owned by Mr. T. Roth, and (ii) 248,000 shares
subject to options granted by the Corporation under the 1991 Plan.
(11) Consists of (i) 2,000 shares owned by Dr. Zuck, (ii) 20,000 shares subject
to options granted by the Corporation under its 1983 Non-Qualified Stock
Option Program ("the 1983 Program"), and (iii) 40,500 shares subject to
options granted by the Corporation under the 1991 Plan.
(12) Consists of (i) 20,000 shares owned by Mr. DeLong, (ii) 199,500 shares
subject to options granted by the Corporation under the 1991 Plan, and
(iii) 800 shares owned by Mr. DeLong's minor children.
(13) Consists of (i) 7,000 shares owned by Dr. Faithfull, (ii) 43,000 shares
subject to options granted by the Corporation under the 1983 Program, and
(iii) 90,750 shares subject to options granted by the Corporation under the
1991 Plan.
(14) Consists of 42,500 shares subject to options granted to Dr. Limmer by the
Corporation under the 1991 Plan.
(15) Wellington Management Company, LLP ("WMC") in its capacity as investment
advisor may be deemed beneficial owner of these shares which are owned by
many clients. WMC has sole voting power or sole dispositive power over none
of the shares, shared voting power over 1,807,600 shares, and shared
dispositive power over all such shares. No client is known to have such
rights and power with respect to more than 5% of the Common Stock except
Vanguard Health Care Fund which is discussed in Footnote 17 and whose
shares are included in the number of shares beneficially owned by WMC.
(16) Fidelity Management and Research Company ("Fidelity"), a subsidiary of FMR
Corp., may be deemed the beneficial owner of all such shares, as a result
of acting as investment adviser to various registered investment companies,
one of which, Fidelity Advisor Value Strategies Fund, owns 3,415,100 of
such shares. FMR Corp. (through its control of Fidelity) and Edward C.
Johnson 3rd, Chairman of FMR Corp., and such investment companies each have
sole power to dispose of such shares. The sole power to vote such shares
resides with the Boards of Trustees of such investment companies, with
voting carried out by Fidelity under guidelines established by such Boards.
Mr. Johnson, Abigail P. Johnson, a director of FMR Corp., and members of
the Johnson family and trusts for their benefit may be deemed to form a
controlling group with respect to FMR Corp. under the Investment Company
Act of 1940.
(17) Vanguard Healthcare Fund owns all such shares and has sole voting and
disposition power over such shares. These shares are included in the number
of shares beneficially owned by WMC as discussed in Footnote 15.
(18) The D Stock was issued to Schering Berlin Venture Corp. ("SBVC") and has
one vote per share. The D Stock votes together with the Common Stock as one
class, except where otherwise required by law. The D Stock was purchased by
SBVC in conjunction with the Corporation's grant, in September 1997, to
Schering AG, Germany ("Schering"), of a worldwide license agreement
("Schering License Agreement") for the Corporation's drug compounds, drug
compositions, and medical devices and systems related to
perfluorocarbon-containing ultrasound imaging products.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning annual and
long-term compensation for the Corporation's Chief Executive Officer and the
other four highest paid executive officers (collectively, the "Named Executive
Officers") for the year ended June 30, 1999, as well as the total compensation
paid to each individual for the Corporation's two previous fiscal years:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Summary Compensation Table
-------------------------------------------------------------------------------
Long-Term
Compen-
Annual Compensation sation
--------------
Awards
------------------------------------------------------------------
Name Other Securities
and Annual Underlying All Other
Principal Salary Bonus Compen- Options/ Compen-
Position Year ($) ($) sation ($)(a) SARs(#) sation ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Duane J. Roth 1999 430,700 - - 150,000 5,289 (b)
Chairman and 1998 388,000 40,000(c) - 150,000 -
Chief Executive Officer 1997 344,000 80,000 186,300(d) 125,000 -
Theodore D. Roth 1999 289,800 - 36,300(e) 100,000 1,256 (f)
President and 1998 257,000 60,000(g) 38,800(h) 75,000 -
Chief Operating Officer 1997 190,500 61,500 37,500(i) 50,000 -
Harold W. DeLong 1999 220,200 - - 75,000 -
Executive Vice President - 1998 196,600 25,000 - 30,000 -
Business Development 1997 187,300 41,000 - 30,000 -
N. Simon Faithfull 1999 212,400 - - 30,000 -
Vice President - 1998 194,900 20,000 - 25,000 -
Medical Affairs Development 1997 185,700 30,500 - 25,000 -
H. Joerg Limmer 1999 208,400 - - 55,000(j) -
Vice President - Pharmaceutical 1998 172,900 20,000 81,100 (k) 10,000 -
Research & Development and 1997 119,300 (l) 27,500 61,600 (m) 50,000 -
Clinical Operations
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Perquisites and other personal benefits for specific officers are only
reported in specific years where such compensation exceeds the lower of 10%
of annual salary and bonus, or $50,000.
(b) This represents the present value of the economic benefit to Mr. D. Roth
for the portion of the total premium ($170,000) paid by the Corporation
during 1999 with respect to a split-dollar life insurance agreement.
(c) The bonus was paid to Mr. D. Roth in October 1997 for completion of the
Schering Licensing Agreement.
(d) Includes tax reimbursement of $184,200 for forgiveness of a loan.
(e) Includes forgiveness of $32,400 of principal and interest on a relocation
loan.
(f) This represents the present value of the economic benefit to Mr. T. Roth
for the portion of the total premium ($60,000) paid by the Corporation
during 1999 with respect to a split-dollar life insurance agreement.
(g) One-half of the bonus was paid to Mr. T. Roth in October 1997 for
completion of the Schering Licensing Agreement.
(h) Includes forgiveness of $35,100 of principal and interest on a relocation
loan.
(i) Includes forgiveness of $36,200 of principal and accrued interest on a
relocation loan.
(j) Options for 25,000 of these shares were granted to Dr. Limmer in exchange
for the cancellation of options for 50,000 shares in connection with the
one-time repricing program authorized by the Corporation.
(k) Includes relocation expense and tax reimbursement of $75,000 during 1998.
(l) Dr. Limmer became an employee of the Corporation in September 1996.
(m) Includes relocation expense and tax reimbursement of $57,200 during 1997.
7
<PAGE>
EMPLOYMENT ARRANGEMENTS
On June 1, 1995, the Corporation loaned Simon Faithfull $70,000. The
loan accrues interest at the rate of nine percent per annum. The loan is due and
payable on demand; provided that unless and until demand is made, principal and
interest shall be payable in biweekly installments of $500 each. The largest
outstanding balance due since the beginning of the last fiscal year was $65,930,
and the outstanding balance as of October 18, 1999, is $56,770. The note is
secured by a lien on Dr. Faithfull's primary residence.
On February 26, 1999 the Corporation entered into an employment
agreement with Artemios B. Vassos, M.D., F.A.C.P. to serve as Executive Vice
President and Chief Scientific Officer of the Corporation. The agreement
provides that Dr. Vassos shall receive a salary of $210,000, a car allowance,
and an option for 75,000 shares of the Corporation's Common Stock at an exercise
price equal to the market price of Common Stock on the date of the agreement.
The agreement provides for a term of employment of up to two years and, upon
early termination, he will receive his monthly base rate of pay for the lesser
of 12 months or the amount of time remaining under his employment agreement. The
Corporation also agreed to cover reasonable relocation expenses. Additionally,
Dr. Vassos received the following loans which are secured by his residence in
California:
(1) A $125,000 loan, one-third of which, plus all accrued interest, will be
forgiven on the first, second and third anniversary of his employment
with the Corporation, provided he remains employed at such time. The
largest outstanding balance due since the beginning of the last fiscal
year was $130,000 and the outstanding balance on October 18, 1999 was
$130,000.
(2) A $125,000 loan with principal and interest payable on a monthly basis
over a five-year period. The largest outstanding balance due since the
beginning of the last fiscal year was $125,000 and the outstanding
balance on October 18, 1999 was $113,000.
(3) A $180,000 loan repayable with accrued interest upon the earlier of the
sale of his previous residence in Michigan. The largest outstanding
balance due since the beginning of the last fiscal year was $184,000
and the outstanding balance was paid in full on August 18, 1999.
All such loans accrued interest at 7.75% per annum and entire
outstanding balance of principal and interest are due and payable within 90 days
of termination of employment.
The Corporation maintains a key man life insurance policy on Duane Roth
providing a death benefit of $4 million to the Corporation. The Corporation
entered into a split-dollar insurance agreement as of November 11, 1998 with
Duane Roth. Pursuant to the agreement, the Corporation and Duane Roth will share
in the premium costs of a universal life insurance policy that pays a death
benefit of not less that $8 million upon the death of Duane Roth. The
Corporation pays the government table (PS-58) cost for $4 million of key person
life coverage and is the beneficiary for this coverage. Mr. Roth contributes the
government table (PS-58) cost for his share of the balance of the coverage. The
portion of each annual premium that equals the annual increase in the cash value
of the policy is also contributed by the Corporation. The Corporation can cause
the agreement to be terminated and the policy to be surrendered at any time upon
30 days prior notice. Upon surrender of the policy or payment of the death
benefit thereunder, the Corporation is also entitled to repayment of an amount
equal to the cumulative premiums previously paid by the Corporation minus the
cumulative amount allocated to the $4 million of key person coverage, with all
remaining payments to be paid to Duane Roth or his beneficiaries.
The Corporation maintains a key man life insurance policy on Ted Roth
providing a death benefit of $4 million to the Corporation. The Corporation
entered into a split-dollar insurance agreement as of November 11, 1998 with
Theodore Roth. Pursuant to the agreement, the Corporation and Theodore Roth will
share in the premium costs of a universal life insurance policy that pays a
death benefit of not less that $4 million upon the death of Theodore Roth. The
Corporation pays the government table (PS-58) cost for $4 million of key person
life coverage and is the beneficiary for this coverage. Mr. Roth contributes the
government table (PS-58) cost for his share of the balance of the coverage. The
portion of each annual premium that equals the annual increase in the cash value
of the policy is also contributed by the Corporation. The Corporation can cause
the agreement to be terminated and the policy to be surrendered at any time upon
30 days prior
8
<PAGE>
notice. Upon surrender of the policy or payment of the death benefit thereunder,
the Corporation is also entitled to repayment of an amount equal to the
cumulative premiums previously paid by the Corporation minus the cumulative
amount allocated to the $4 million of key person coverage, with all remaining
payments to be paid to Theodore Roth or his beneficiaries.
STOCK OPTION GRANTS AND EXERCISES
The Corporation has granted options to its executive officers under its
1983 Incentive Stock Option Plan (which plan expired on October 1, 1993), its
1983 Non-Qualified Stock Option Program (which plan expired on February 24,
1999), and its 1991 Stock Option Plan. No stock appreciation rights ("SARs")
have been granted by the Corporation.
The following table sets forth certain information concerning options
granted during fiscal 1999 to the Named Executive Officers:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
- -----------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of
Individual Grants Stock Price Appreciation for
Option Term (1)
--------------------------------------------------------------------------------------------------
Securities % of Total
Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price Expiration
Name Granted (#) (2) in Fiscal Year ($/Share) (5) Date 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Duane J. Roth 150,000 (3) 7.7% 4.875 11/11/08 459,900 1,165,400
Theodore D. Roth 100,000 (3) 5.1% 4.875 11/11/08 306,600 776,900
Harold W. DeLong 75,000 (3) 3.8% 4.875 11/11/08 229,900 582,700
N. Simon Faithfull 30,000 (3) 1.5% 4.875 11/11/08 92,000 233,100
H. Joerg Limmer 30,000 (3) 1.5% 4.875 11/11/08 92,000 233,100
25,000 (4) 1.3% 5.00 8/26/08 43,000 142,500
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The dollar amounts under these columns are the result of calculations
assuming that the price of Common Stock on the date of the grants of the
options increases at the hypothetical 5% and 10% rates set by the
Securities and Exchange Commission and therefore are not intended to
forecast possible future appreciation, if any, of the Corporation's stock
price.
(2) All options granted in 1999 to the Named Executive Officers were
non-qualified stock options under the 1991 Plan.
(3) Options are exercisable in increments of 20% per year commencing one year
after the date of issuance and on each subsequent anniversary.
(4) Dr. Limmer received these options, 80% exercisable on August 27, 1999 and
the remaining 20% exercisable on July 29, 2000, by returning for
cancellation previously outstanding options for 50,000 shares in connection
with a one-time repricing program authorized by the Corporation.
(5) The exercise price per share of the options granted represented at least
the fair market value of the underlying shares on the date of grant.
Options may be exercised by (i) paying the Corporation at least the par
value of the shares of Common Stock being acquired, with the remainder of
the exercise price to be borrowed from the Corporation, or (ii) by
surrendering shares of Common Stock in payment of the exercise price and
applicable withholding taxes. The 1991 Plan provides that loans to pay the
exercise price shall mature within five years (or earlier, in the event of
a termination of employment or of a consultancy), shall be secured by the
shares of Common Stock purchased, shall provide for quarterly payments of
interest at such rate as the Board of Directors may determine, and shall be
in such form and contain such other provisions as the Board of Directors
may determine from time to time.
9
<PAGE>
The following table summarizes options exercised during fiscal 1999 and
presents the value of unexercised options held by the Named Executive Officers
at fiscal year end:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised
Underlying In-The-Money
Unexercised Options/SARs Options/SARs at Fiscal
at Fiscal Year End (#) Year End ($) Exercisable
Shares Acquired on Value Exercisable (E)/ (E)/
Exercise (#) Realized ($) Unexercisable (U) Unexercisable (U)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Duane J. Roth 58,800 234,600 360,900 (E) - (E)
307,500 (U) - (U)
Theodore D. Roth 19,667 85,800 174,500 (E) - (E)
165,000 (U) - (U)
Harold W. DeLong - - 151,250 (E) - (E)
98,250 (U) - (U)
N. Simon Faithfull - - 105,250 (E) - (E)
65,000 (U) - (U)
H. Joerg Limmer - - 2,000 (E) - (E)
63,000 (U) - (U)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BOARD OF DIRECTORS REPORT ON AUGUST 1998 ONE-TIME STOCK OPTION REPRICING PROGRAM
In August 1998, the Corporation offered to all employees (except for
the Chief Executive Officer, President and Executive Vice President-Business
Development) a one-time opportunity to exchange any number of outstanding
options held by such employees for new ten-year options representing one-half as
many shares as the employee turned in for cancellation (the "Repricing
Program"). Vesting for the new options was identical to the exchanged options as
of the date of the exchange; provided, however, that no employee could exercise
such new options for a one-year period from the date of the exchange. All new
options issued under the exchange program have an exercise price of $5.00. The
replacement options were issued above the then existing market price of $4.125.
The Repricing Program was provided by the Corporation to allow
long-term employees whose previous options were exercisable at higher exercise
prices to benefit from future stock price increases. The Board of Directors
determined that the Repricing Program was necessary because equity incentives
are a component of the total compensation of each employee and play a
substantial role in the Corporation's ability to retain the services of the
individuals essential to the Corporation's long-term financial success. Prior to
implementation of the program, the market price of the Common Stock had fallen
and did not necessarily reflect the progress made by the Corporation in its
product development efforts. The Board of Directors felt that the Corporation's
ability to retain key employees would be significantly impaired unless value was
restored in the form of regranted options for the Common Stock.
The Board of Directors believes the regranted options for fewer shares
at a lower exercise price and new term strike an appropriate balance between the
interests of the option holders and those of the shareholders. The lower
exercise prices in effect under the regranted options make those options
valuable once again to the officers and employees critical to the Corporation's
financial performance. The new ten-year term allows those individuals to enjoy
the benefits of the regranted options over a longer period of corporate growth
if they remain in the Corporation's employ and contribute to the Corporation's
and its shareholders' financial success. The Repricing Program was the first and
only such program in the last ten fiscal years. In August 1999, the Board of
Directors adopted a resolution and amended the 1991 Plan to provide that no
further repricing of options could be undertaken by the Corporation without the
approval of the shareholders.
10
<PAGE>
The following executive officers participated in the Repricing Program
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
10-YEAR OPTION/SAR REPRICING
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
securities Market price
underlying of stock Length of original
Options/SARs at time of Exercise price at New option term remaining
repriced or repricing or time of repricing exercise at date of repricing
Name Date amended (#) amendment ($) or amendment ($) price ($) or amendment
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
H. Joerg Limmer, Vice 8/27/98 25,000 4.125 14.875 5.00 7 years, 336 days
President, Pharmaceutical
Research & Development and
Clinical Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Keith W. Chapman, Vice 8/27/98 5,000 4.125 22.38 5.00 3 Years, 267 Days
President, Operations 1,875 9.00 5 years, 173 days
750 16.50 7 years, 169 days
5,000 13.125 8 years, 78 days
12,500 9.375 9 years, 77 days
- -----------------------------------------------------------------------------------------------------------------------------------
B. Jack DeFranco, Vice 8/27/98 2,625 4.125 9.75 5.00 4 years, 217 days
President, Market 3,750 9.00 5 years, 173 days
Development 8,750 13.125 8 years, 78 days
12,500 9.375 9 years, 77 days
- -----------------------------------------------------------------------------------------------------------------------------------
Kathryn, E. Flaim, Vice 8/27/98 1,250 4.125 16.50 5.00 7 years, 169 days
President, Clinical Research 5,000 13.125 8 years, 78 days
- -----------------------------------------------------------------------------------------------------------------------------------
Timothy T. Hart, Vice 8/27/98 9,000 4.125 8.75 5.00 2 years, 231 days
President and Chief Financial 750 16.50 7 years, 169 days
Officer 5,000 13.125 8 years, 78 days
- -----------------------------------------------------------------------------------------------------------------------------------
Gwen Rosenberg, Vice 8/27/98 500 4.125 12.13 5.00 4 years, 348 days
President, Corporate 250 11.75 2 years, 109 days
Communications 750 16.50 7 years, 169 days
1,000 13.125 8 years, 78 days
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Seefeld, Vice 8/27/98 10,000 4.125 10.38 5.00 4 years, 186 days
President, Drug Safety 750 18.00 7 years, 256 days
5,000 13.125 8 years, 78 days
5,000 9.375 9 years, 77 days
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors (the "Committee")
has provided the following report:
The Committee is composed entirely of outside, nonemployee directors.
The Committee determines the base salaries and the amount of bonus awards to be
paid to the executive officers of the Corporation. In addition, the Committee
recommends the number of the Corporation's stock option grants which should be
made to executive officers and other employees of the Corporation. The following
is a summary of policies of the Committee that affect the compensation paid to
executive officers, as reflected in the tables and text set forth elsewhere in
the proxy statement.
EXECUTIVE COMPENSATION POLICY AND COMPONENTS OF COMPENSATION
The Committee's fundamental executive compensation philosophy is to
enable the Corporation to attract and retain key executive personnel and to
motivate those executives to achieve the Corporation's objectives. The
Corporation is still in its research and development phase and has not yet
achieved profitability. Therefore, traditional methods of evaluating executive
performance, such as sales and profit levels, return on equity, and stock price,
are inappropriate. Accordingly, assessment of each executive's performance is
based upon attainment of his or her specific objectives in relation to the
Corporation's overall annual strategic goals. The Committee may in its
discretion apply different measures of performance for future fiscal years.
However, it is presently contemplated that all compensation decisions will be
designed to further the fundamental executive compensation philosophy described
above.
11
<PAGE>
Each executive officer's compensation package is reviewed annually and
is comprised of three components: base salary, bonus, and stock option grants.
In addition, executive officers of the Corporation are eligible to participate
in all benefit programs generally available to other employees.
BASE SALARY
In setting the base salary levels of each executive officer, the
Committee considers the base salaries of executive officers in comparable
positions in other similarly situated biotechnology/pharmaceutical development
companies. In setting levels, the Corporation currently targets the 75th
percentile of the relevant labor market. Factors considered include company
size, stage of development of a company's products, and geographical location.
The Committee also considers the individual experience level and actual
performance of each executive officer in view of the Corporation's needs and
objectives. Salary decisions are determined in a structured annual review by the
Committee with input from the Chief Executive Officer.
BONUSES
Annual bonus, set as a targeted percentage of total cash compensation,
may be earned by each executive officer, based upon the achievement of
performance goals established at the beginning of the fiscal year and reviewed
at least twice during the year.
Performance goals for the Corporation are developed by management, and
reviewed and approved by the Committee and the Board of Directors. Performance
goals for individual executives are developed by the Chief Executive Officer,
and reviewed and approved by the Committee. Bonuses are awarded to executives
based upon the attainment of these goals during the year, with the Corporation
and the executives accomplishing minimum objectives prior to being eligible to
receive a bonus. The Committee considers the amounts of bonuses it expects to
pay to executives when it compares its compensation practices with other
companies similarly situated.
LONG-TERM STOCK-BASED INCENTIVE COMPENSATION
Generally, the Corporation's Board of Directors or, if appointed, a
stock option committee, approves annual grants of stock options to each of the
Corporation's executive officers under the 1991 Plan based upon recommendations
from the Committee. The grants are designed to align the interest of each
executive officer with those of the shareholders and provide each individual
with a significant incentive to manage the Corporation from the perspective of
an owner with an equity stake in the business. Each grant generally allows the
officer to acquire shares of the Corporation's Common Stock at a fixed price per
share (the market price on the grant date) over a specified period of time (up
to ten years), thus providing a return to the executive officer only if the
market price of the shares appreciates over the option term. The size of the
option grant to each executive officer generally is set as the Committee deems
appropriate in order to retain and motivate key executive officers as well as to
provide them with the perspective of the Corporation's shareholders in assessing
corporate results. The grants also take into account comparable awards to
individuals in similar positions at biotechnology/pharmaceutical development
companies as reflected in external surveys, the individual's potential for
future responsibility and promotion over the option term, the individual's
personal performance in recent periods, and the risk attached to the future
growth of the pharmaceutical industry. In making comparisons in the industry,
the Corporation targets the 75th percentile of the relevant labor market.
The Committee, at its discretion, has the authority to utilize
compensation consultants to assist in defining the relevant labor market for
executive compensation and to recommend annual salary and bonus increases.
Duane J. Roth, Chief Executive Officer, although not a member of the
Committee, assisted the Committee in developing the compensation packages
awarded to executive officers other than himself.
CEO COMPENSATION
In setting the compensation payable to the Corporation's Chief
Executive Officer, the Committee sought to be competitive with other
biotechnology/pharmaceutical development companies. In making comparisons, the
Corporation targets the 75th percentile of the relevant labor market. The
Committee established Duane Roth's base salary based on an evaluation of his
personal performance and the objective of having his base salary keep pace with
salaries being paid to
12
<PAGE>
similarly situated chief executive officers. With respect to his base salary, it
is the Committee's intent to provide him with a level of stability and certainty
each year and not have this particular component of compensation affected to any
significant degree by Corporation performance factors. The remaining component
of his 1999 fiscal year compensation, however, was dependent upon performance
and provided no dollar guarantees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a former or current officer
or employee of the Corporation or any of its subsidiaries.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Donald E. O'Neill, Chairman Dr. Helen M. Ranney
Dr. Pedro Cuatrecasas Stephen M. McGrath
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return to
the Corporation's shareholders during the five-year period ended June 30, 1999,
as well as with that of an overall stock market index (Nasdaq) and a published
industry index (Nasdaq Pharmaceutical):
PLOT POINTS
<TABLE>
<CAPTION>
ALLP NASDAQ (US) NASDAQ PHARM
- ------------------------------------------------------------------
<S> <C> <C> <C>
06/30/1994 $100.00 $100.00 $100.00
- ------------------------------------------------------------------
06/30/1995 $84.62 $133.48 $133.12
- ------------------------------------------------------------------
06/30/1996 $169.23 $171.38 $195.99
- ------------------------------------------------------------------
06/30/1997 $103.21 $208.43 $199.42
- ------------------------------------------------------------------
06/30/1998 $42.95 $274.43 $204.31
- ------------------------------------------------------------------
06/30/1999 $26.92 $392.16 $285.28
- ------------------------------------------------------------------
</TABLE>
2. PROPOSED AMENDMENT OF THE 1991 STOCK OPTION PLAN
Effective November 8, 1991, the Board of Directors and the shareholders
of the Corporation adopted the 1991 Non-Qualified Stock Option Program (the
"1991 Program") pursuant to which 1,000,000 shares of Common Stock were reserved
for issuance upon the exercise of options granted under the terms of the 1991
Program. On November 19, 1994, the shareholders of the Corporation approved the
amendment and restatement of the 1991 Program (as amended and restated, it is
entitled the 1991 Stock Option Plan of Alliance Pharmaceutical Corp., the "1991
Plan") pursuant to which an additional 1,000,000 shares of Common Stock were
reserved for issuance upon the exercise of options granted under the terms of
the 1991 Plan. On November 16, 1995, the shareholders of the Corporation
approved an amendment to the 1991 Plan pursuant to which an additional 1,200,000
shares of Common Stock were reserved for issuance upon the exercise of
13
<PAGE>
options granted under terms of the 1991 Plan. On November 13, 1996, the
shareholders of the Corporation approved an amendment to the 1991 Plan
pursuant to which an additional 1,500,000 shares of Common Stock were
reserved for issuance upon the exercise of options granted under terms of the
1991 Plan. On November 12, 1997, the shareholders of the Corporation approved
an amendment to the 1991 Plan pursuant to which an additional 1,500,000
shares of Common Stock were reserved for issuance upon the exercise of
options granted under the terms of the 1991 Plan. As of October 18, 1999,
616,516 shares remained available for issuance under the 1991 Plan. On August
11, 1999, the Board of Directors approved an amendment to the 1991 Plan,
subject to shareholder approval, to increase the number of shares authorized
for issuance under the 1991 Plan from 6,200,000 to 8,300,000 shares. On
August 11, 1999, the Board also amended the 1991 Plan to provide that,
without the approval of the Corporation's shareholders, options would not be
repriced by lowering the option exercise price of a previously granted option
or by the cancellation of outstanding options with subsequent replacement or
regrant of options with a lower exercise price.
The Board believes that the increase is necessary to meet the
Corporation's objectives of motivating and retaining officers, employees and
nonemployee consultants with appropriate experience and ability, and to increase
the grantees' alignment of interest with the Corporation's shareholders. The
increase of 2,100,000 shares represents 4% of the Corporation's Common Stock on
a fully diluted basis as of June 30, 1999.
DESCRIPTION OF THE PLAN
The following is a summary of the principal features of the 1991 Plan:
PURPOSE
The purpose of the 1991 Plan is to assist the Corporation in the
recruitment, retention and motivation of directors, officers, employees and
consultants who are providing, or who are expected to provide, services which
are deemed important to the Corporation, by enabling them to acquire the
Corporation's Common Stock, thereby increasing their proprietary interest in and
commitment to the growth and success of the Corporation.
ADMINISTRATION
The 1991 Plan is administered by the Board of Directors of the
Corporation unless the Board of Directors appoints a committee to administer the
1991 Plan. The Board of Directors, or if appointed, the stock option committee,
which will be referred to in this summary as the Plan Administrator, has full
authority, subject to the provisions of the 1991 Plan, to determine the eligible
individuals who are to receive option grants under the 1991 Plan, the type of
option (incentive stock option or non-qualified stock option) to be granted, the
consideration for the granting of such options, the number of shares to be
covered by each granted option, the date or dates on which the option is to
become exercisable, and the maximum term for which the option is to remain
outstanding. The Board of Directors currently serves as the Plan Administrator.
ELIGIBILITY AND SHARES SUBJECT TO THE 1991 PLAN
Under the 1991 Plan, 8,300,000 shares of Common Stock have been
reserved for issuance (2,100,000 shares of which are subject to shareholder
approval at the Meeting) upon the exercise of options granted pursuant to the
terms of the 1991 Plan. The 1991 Plan provides for the grant of both incentive
stock options ("ISOs") intended to qualify as such under section 422 of the
Internal Revenue Code of 1986, as amended, and non-qualified stock options
("NSOs"). ISOs may be granted only to employees of the Corporation. NSOs may be
granted to employees, nonemployee directors and consultants who provide services
which are deemed important to the Corporation. If any options granted under the
1991 Plan shall for any reason expire or be canceled or otherwise terminated
without having been exercised in full, the shares allocable to the unexercised
portion of such options shall again become available for the 1991 Plan. If
options issued under the 1991 Plan are canceled unexercised, they also become
available for new grants. Options to purchase more than 200,000 shares may not
be granted to any individual in a single calendar year under the 1991 Plan.
As of June 30, 1999, options to purchase an aggregate of 5,199,222
shares of Common Stock, at a weighted average exercise price of $7.75 per share,
were outstanding under all of the Corporation's stock option plans (including
options granted under the 1983 Non-Qualified Stock Option Program, which expired
on February 24, 1999). As of June 30, 1999, approximately 230 employees
(including two directors who are employees) and seven nonemployee directors
14
<PAGE>
were eligible to participate in the 1991 Plan. On October 18, 1999, the closing
price for the Corporation's Common Stock on the Nasdaq National Market was
$4.625. All stock options granted since November 15, 1991 have been granted with
exercise prices at least equal to the closing price for the Company's Common
Stock on the Nasdaq National Market on the date of grant. As of June 30, 1999,
2,575,561 stock options granted under all of the stock option plans had been
exercised, and stock options for a total of 3,244,193 shares of Common Stock
were available for future grants (including those available under the amendment
to the 1991 Plan, subject to shareholder approval at the Meeting).
As of October 18, 1999, the following persons or groups had, in total,
received options to purchase shares of Common Stock under the 1991 Plan as
follows: (i) the Chief Executive Officer and the other Named Executive Officers:
Duane J. Roth, Chairman and Chief Executive Officer, 602,400; Theodore D. Roth,
President and Chief Operating Officer, 386,500; Harold W. DeLong, Executive Vice
President - Business Development, 284,500;N. Simon Faithfull, Vice President
Medical Affairs Development, 152,250; H. Joerg Limmer, Vice President -
Pharmaceutical Research & Development and Clinical Operations, 140,000; (ii) all
current executive officers of the Corporation as a group: 2,484,700 (which
includes options to purchase 234,000 shares canceled in connection with the
one-time repricing program); (iii) each current director (and each director
nominee) who is not an executive officer (including options granted pursuant to
the Directors' Formula Option Plan described below): Pedro Cuatrecasas 42,500;
Carroll O. Johnson 58,000; Stephen M. McGrath 40,500; Donald E. O'Neill 68,500;
Helen M. Ranney 68,500; Jean G. Riess 90,500; and Thomas F. Zuck 40,500; (iv)
all current directors who are not executive officers as a group: 409,000; (v)
each person who has received 5% of options granted other than those named above:
none; (vi) all employees of the Corporation, including all current officers who
are not executive officers, as a group: 3,078,757 (which includes options to
purchase 458,485 shares canceled in connection with the one-time repricing
program); and (vii) each associate of any such directors or executive officers:
none.
TERMS OF OPTIONS
Each option granted under the 1991 Plan must be exercised within ten
years of the date of its grant unless the Plan Administrator specifies some
lesser time. Stock options granted under the 1991 Plan must be exercised by the
optionee before the earlier of the expiration of such option or the date ten
days after termination of the optionee's employment or service, except that this
period is extended to three months in the case of the optionee's retirement at
or after age 65 or termination of employment or service due to disability, and
to six months in the case of the optionee's death, in which case the option is
exercisable by the optionee's estate. Options granted pursuant to the 1991 Plan,
except for grants to nonemployee directors (which vest in accordance with the
Nonemployee Director Formula Plan), will vest at the time or times determined by
the Plan Administrator. Options become immediately exercisable in full upon the
optionee's retirement at or after age 65 or termination of employment or service
due to disability or death, or upon the occurrence of such circumstance or event
as in the opinion of the Plan Administrator merits special consideration.
Options are subject to such terms and conditions, including price and
rate of exercise, as the Plan Administrator may determine. However, the exercise
price for ISOs will be no less than 100% of fair market value on the date of
grant. The exercise price for NSOs will be no less than the greater of par value
of said shares ($.01 per share) or eighty percent (80%) of the fair market value
of said shares on the date of grant.
Payment of the purchase price for shares purchased pursuant to the
exercise of an option may be made by cash or check, by a "cashless" exercise
method through a broker, by surrendering shares of Common Stock of the
Corporation in payment of the exercise price and applicable withholding taxes,
or by such other methods as the Plan Administrator may permit from time to time.
A grantee who is an employee of or a consultant to the Corporation at the time
of exercise of an option may, if authorized by the Plan Administrator, exercise
his/her option by paying the Corporation at least the par value of the shares of
Common Stock being acquired and borrowing the remainder of the exercise price
from the Corporation. The 1991 Plan provides that such loans shall mature within
five years (or earlier, in the event of a termination of employment or of a
consultancy), shall be secured by the shares of Common Stock purchased, shall
provide for quarterly payments of interest at such rate as the Plan
Administrator may determine and shall be in such form and contain such other
provisions as the Plan Administrator may determine from time to time.
15
<PAGE>
DURATION, AMENDMENT AND TERMINATION
The 1991 Plan expires on November 7, 2001. The 1991 Plan may be
amended, suspended or terminated at any time by action of the Board of
Directors or the Plan Administrator, except that no such action may, without
shareholder approval, increase the maximum number of shares reserved for
options under the 1991 Plan or for any individual, change the class of
eligible persons or materially increase the benefits accruing to eligible
persons under the 1991 Plan. Furthermore, no action may, without the consent
of an optionee, adversely affect his/her rights under any option theretofore
granted. Effective August 11, 1999, without the approval of the Corporation's
shareholders, the Plan does not allow options to be repriced by lowering the
option exercise price of a previously granted option or by the cancellation
of outstanding options with subsequent replacement or regrant of options with
a lower exercise price.
FEDERAL INCOME TAX CONSEQUENCES
Neither the optionee nor the Corporation will incur any federal tax
consequences as a result of the grant of an option. The optionee will have no
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply), and the Corporation will receive no deduction when an ISO is
exercised. Upon exercising an NSO, the optionee generally must recognize
ordinary income equal to the "spread" between the exercise price and the fair
market value of the Common Stock on the date of exercise; and the Corporation
will be entitled to a deduction for the same amount. In the case of an employee,
the option spread at the time an NSO is exercised is subject to income tax
withholding. The tax treatment of a disposition of option shares acquired under
the 1991 Plan depends on how long the shares have been held and on whether such
shares were acquired by exercising an ISO or NSO. The Corporation will not be
entitled to a deduction in connection with a disposition of option shares,
except in the case of a disposition of shares acquired under an ISO before the
applicable ISO holding periods have been satisfied.
Shareholders are requested in this Proposal 2 to approve the increase
in the number of shares authorized for issuance under the 1991 Plan from
6,200,000 to 8,300,000. Under New York law, the affirmative vote of the holders
of securities representing a majority of the voting power present in person or
represented by proxy at the Meeting is required to adopt the proposed amendment
of the 1991 Plan of the Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE
AMENDMENT OF THE 1991 STOCK OPTION PLAN.
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP to
serve as the independent auditors for the Corporation for the fiscal year ending
June 30, 2000. Representatives of Ernst & Young LLP are expected to be present
at the Meeting, will have the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions.
Shareholder ratification of the appointment of Ernst & Young LLP as the
Corporation's independent auditors is not required by the Corporation's Bylaws
or otherwise. If the shareholders fail to ratify the appointment, the Board will
reconsider whether or not to retain that firm. Even if the appointment is
ratified, the Board in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board determines
that such a change would be in the best interests of the Corporation and its
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
4. OTHER BUSINESS
Management knows of no other matters that may be presented to the
Meeting. However, if any other matter properly comes before the Meeting, it is
intended that proxies in the accompanying form will be voted in accordance with
the judgment of the persons named therein.
16
<PAGE>
FUTURE PROPOSALS BY SHAREHOLDERS
Any proposal which a shareholder of the Corporation wishes to have
included in the proxy statement and proxy relating to the Corporation's 2000
Annual Meeting pursuant to the provisions of Rule 14a-8 under the Securities
Exchange Act of 1934 must be received by the Corporation at its executive
offices no later than July 8, 2000, and must otherwise comply with the
requirements of Rule 14a-8. Shareholder proposals submitted outside the
processes of Rule 14a-8 will also be considered untimely if submitted after July
8, 2000. The address of the Corporation's executive office is 3040 Science Park
Road, San Diego, California 92121.
ANNUAL REPORT ON FORM 10-K
THE CORPORATION WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K, INCLUDING
THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, TO EACH PERSON
SOLICITED HEREUNDER WHO MAILS A WRITTEN REQUEST THEREFOR TO ALLIANCE
PHARMACEUTICAL CORP., 3040 SCIENCE PARK ROAD, SAN DIEGO, CA 92121, ATTENTION:
LLOYD A. ROWLAND, VICE PRESIDENT AND GENERAL COUNSEL. THE CORPORATION WILL ALSO
FURNISH, UPON THE PAYMENT OF A REASONABLE FEE TO COVER REPRODUCTION AND MAILING
EXPENSES, A COPY OF ALL EXHIBITS TO SUCH ANNUAL REPORT ON FORM 10-K.
It is important that your shares be represented at the Meeting. If you
are unable to be present in person, you are respectfully requested to sign the
enclosed proxy and return it in the enclosed stamped, addressed envelope as
promptly as possible.
By Order of the Board of Directors,
Duane J. Roth, Chairman
Date: November 5, 1999
San Diego, California
17
<PAGE>
1991 STOCK OPTION PLAN
OF
ALLIANCE PHARMACEUTICAL CORP.
(as amended through August 11, 1999)
1. PURPOSE. The purpose of this Stock Option Plan (the "Plan") is to
provide an additional incentive to, and attract and hold in service,
directors, officers and other employees of, and consultants to, the
Corporation, and any future subsidiaries of the Corporation, who are
providing, or who are expected to provide, services which are deemed
important to the Corporation. Accordingly, these persons may be encouraged to
acquire stock ownership in, and increase their commitment to, the
Corporation, thereby promoting the interests of the Corporation and its
shareholders. Options granted under the Plan may be incentive stock options
satisfying the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), and non-qualified stock
options which are not intended to satisfy said Section 422.
2. DEFINITIONS. When used in this Plan, unless the context otherwise
requires:
(a) "Board of Directors" or "Board" shall mean the Board of Directors
of the Corporation, as constituted at any time.
(b) "Chairman of the Board" shall mean the person who at the time
shall be Chairman of the Board of Directors.
(c) "Committee" shall mean the Committee hereinafter described in
Section 3.
(d) "Corporation" shall mean Alliance Pharmaceutical Corp., a New
York corporation.
(e) "Eligible Persons" shall mean those persons described in Section
4 who are potential recipients of Options.
(f) "Fair Market Value" on a specified date shall mean the closing
price at which a Share is traded on the stock exchange, if any, on which
Shares are primarily traded or, if the Shares are not then traded on a
stock exchange, the average of the closing bid and asked prices at which a
Share is traded on the over-the-counter market, as reported on the National
Association of Security Dealers Automated Quotation System, but if no
Shares were traded on such date, then on the last previous date on which a
Share was so traded, or, if none of the above are applicable, the value of
a Share as established by the Committee for such date using any reasonable
method of valuation.
(g) "Options" shall mean the Stock Options granted pursuant to this
Plan.
18
<PAGE>
(h) "Plan" shall mean this 1991 Stock Option Plan of Alliance
Pharmaceutical Corp., as adopted by the Board of Directors on May 20, 1994,
as such Plan from time to time may be amended.
(i) "President" shall mean the person who at the time shall be the
President of the Corporation.
(j) "Share" shall mean a share of common stock, par value $.01 per
share, of the Corporation.
(k) "Subsidiary" shall mean any corporation 50% or more of whose
stock having general voting power is owned by the Corporation, or by
another Subsidiary as herein defined, of the Corporation.
3. COMMITTEE. The Plan shall be administered by the Board of Directors
unless the Board of Directors otherwise appoints a committee to administer the
Plan.
4. PARTICIPANTS. The class of persons who are potential recipients of
Options granted under this Plan consist of directors and key employees of the
Corporation or a Subsidiary, and consultants to the Corporation or a
Subsidiary (hereinafter referred to as "Consultants"), as determined by the
Committee. The persons to whom Options are granted under this Plan, and the
number of Shares subject to each such Option, shall be determined by the
Committee in its sole discretion, subject, however, to the terms and
conditions of this Plan.
5. SHARES. Subject to the provisions of Section 14 hereof, the
Committee may grant Options with respect to an aggregate of up to 8,300,000
Shares, all of which Shares may be either Shares held in treasury or
authorized but unissued Shares. The maximum number of Shares which may be
the subject of Options granted to any individual in any calendar year shall
not exceed 200,000 Shares. If the Shares that would be issued or transferred
pursuant to any Option are not issued or transferred and cease to be issuable
or transferable for any reason, the number of Shares subject to such Option
will no longer be charged against the limitation provided for herein and may
again be made subject to Options; provided, that the counting of Shares
subject to Options granted under the Plan against the number of Shares
available for further Options shall in all cases conform to the requirements
of Rule 16b-3 under the Exchange Act; and provided, further, that with
respect to any Option granted to any Eligible Person who is a "covered
employee" as defined in Section 162(m) of the Internal Revenue Code and the
regulations promulgated thereunder that is canceled, the number of Shares
subject to such Option shall continue to count against the maximum number of
Shares which may be the subject of Options granted to such Eligible Person.
6. GRANT OF OPTIONS. The number of any Options to be granted to any
Eligible Person shall be determined by the Committee in its sole discretion.
At the time an Option is granted, the Committee may, in its sole discretion,
designate whether such Option (a) is to be considered as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code, or (b)
is not to be treated as an incentive stock option for purposes of this Plan
and the Internal Revenue Code. No option which is intended to qualify as an
incentive stock option shall
19
<PAGE>
be granted to any individual who, at the time of the grant, is not an
employee of the Corporation or a Subsidiary.
Notwithstanding any other provision of this Plan to the contrary, to the
extent that the aggregate Fair Market Value (determined as of the date an
Option is granted) of the Shares with respect to which Options which are
designated as (or deemed to be) incentive stock options granted to an
employee (and any incentive stock options granted to such employee under any
other incentive stock option plan maintained by the Corporation or any
Subsidiary that meets the requirements of Section 422 of the Internal Revenue
Code) first become exercisable in any calendar year exceeds $100,000, such
Options shall be treated as Options which are not incentive stock options.
Options with respect to which no designation is made by the Committee shall
be deemed to be incentive stock options to the extent that the $100,000
limitation described in the preceding sentence is met. This paragraph shall
be applied by taking options into account in the order in which they are
granted.
Nothing herein contained shall be construed to prohibit the issuance of
Options at different times to the same person.
An Option shall be evidenced by a written Option agreement in a form
approved by the Committee. An Option agreement signed by the Chairman of the
Board or the President or a Vice President of the Corporation, and dated the
day of grant, or such later date as the Committee in its sole discretion,
shall determine, shall be tendered to each person to whom an Option is
granted, except that such Option agreement shall be deemed rescinded and have
no effect if the Option holder, within a specified period, does not sign an
unqualified acceptance, in such form as the Committee has prescribed, of such
Option agreement. The Option agreement for an Option shall indicate whether
or not the Option is an incentive stock option.
7. PURCHASE PRICE. The purchase price per Share of the Shares to be
purchased pursuant to the exercise of an Option shall be fixed by the
Committee at the time of grant; provided however, that the purchase price per
Share under an incentive stock option shall not in any event be less than
100% of the Fair Market Value of a Share on the date of grant of the Option
and the purchase price per Share under a non-qualified stock option shall not
be less than the greater of either the par value of said Shares or 80% of the
Fair Market Value of said Shares on the date of grant of the Option.
8. DURATION OF OPTIONS. The duration of any Option granted under this
Plan shall be for a period of ten years from the date upon which the Option
is granted or such lesser period as the Committee may determine at the time
of grant.
9. TEN PERCENT SHAREHOLDERS. Notwithstanding any other provision of
this Plan to the contrary, no Option which is intended to qualify as an
incentive stock option may be granted under this Plan to any employee who, at
the time the Option is granted, owns Shares possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation or any
Subsidiary, unless the exercise price under such Option is at least 110% of
the Fair Market Value of a Share on the date such Option is granted and the
duration of such Option is no more than five years.
20
<PAGE>
10. EXERCISE OF OPTIONS. Except as otherwise provided herein, Options,
after the grant thereof, shall be exercisable by the holder at such rate and
times as may be fixed by the Committee; provided, however, that no Options
may be exercised for less than 100 Shares at a time, unless the grant is for
a number of Shares not evenly divisible by 100, in which case the final
exercise may be for the remaining Shares; and provided, further, that no
Option may be exercised prior to the approval of the Plan by a majority vote
of the shareholders.
Notwithstanding the foregoing, all or any part of any remaining
unexercised Options granted to any person may, after approval of the Plan by
a majority vote of the shareholders of the Corporation, be exercised in the
following circumstances: (a) subject to the provisions of Section 13 hereof,
immediately upon (but prior to the expiration of the term of the Option) the
holder's cessation of employment or service due to retirement from the
Corporation and all Subsidiaries on or after his 65th birthday, (b) subject
to the provisions of Section 13 hereof, upon the disability (to the extent
and in a manner as shall be determined by the Committee in its sole
discretion) or death of the holder, or (c) upon the occurrence of such
special circumstance or event as in the opinion of the Committee merits
special consideration; provided, however, that the estate of the deceased
holder of an Option may exercise it prior to the expiration of the six-month
period described above.
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect ("Exercise Notice"), together
with the full purchase price of the Shares purchased pursuant to the exercise
of the Option, to the Chairman of the Board or an officer of the Corporation
appointed by the Chairman of the Board for the purpose of receiving the same.
Payment of the full purchase price shall be made as follows: (i) in cash or
by check payable to the order of the Corporation which amount payable
includes all applicable withholding taxes; (ii) by including in the Exercise
Notice an order to a designated broker to sell part or all of the Shares and
to deliver sufficient proceeds to the Corporation to pay the full purchase
price of the Shares and all applicable withholding taxes; (iii) if
specifically authorized by the Committee and the purchaser is an employee or
Consultant at the time of purchase, by payment in cash of at least $.01 per
Share and all applicable withholding taxes, with the remainder of the Option
price being borrowed from the Corporation as described below; or (iv) by such
other methods as the Committee may permit from time to time. In the case
described in clause (iii) above, the Corporation, unless otherwise determined
by the Committee, will lend to such purchaser an amount up to the excess of
the full Option price of the Shares purchased over the cash payment, but not
more than the excess of such price over the par value of such Shares, such
loan to be evidenced by the purchaser's delivery to the Corporation of his or
her unconditional promissory note to pay the amount of the loan within five
years in such manner as is determined by the Committee. Any such note: (i)
shall be dated the date of the Exercise Notice of the Option, (ii) shall
provide for the payment of equal installments of principal, (iii) shall
provide for quarterly payment of interest on such indebtedness at such rate
as the Committee may determine, which cannot be less than the prime rate and
(iv) shall be in such form and contain such other provisions as the Committee
may determine from time to time. In connection with any such loan the
purchaser shall deposit with the pledge to the Corporation the certificate or
certificates evidencing all of the Shares so purchased, to be held by the
Corporation as collateral security for such loan. If the employment or
consulting arrangement of the purchaser is terminated by reason of death, any
unpaid balance of such indebtedness shall become due and payable one year
after the date of
21
<PAGE>
the death, but not later than five years after the date of purchase, unless
otherwise determined by the Committee. If the employment or consulting
arrangement of the purchaser is terminated for any reason other than death,
any unpaid balance of such indebtedness shall become immediately due and
payable on such date of termination, unless otherwise determined by the
Committee. Cash dividends paid on Shares held by the Corporation as security
shall be paid to the purchaser. Voting rights and other shareholder's rights
with respect to all Shares shall vest in the purchaser although the Shares
are held by the Corporation as security. Upon default in the payment of
principal or interest on a loan provided for in this paragraph, the
Corporation, to the extent then permitted by law and without demand or notice
to the debtor, may sell any pledged Shares for the benefit of the debtor and
apply the net proceeds of such sale to the then unpaid principal and interest
on such loan, and any remainder of such proceeds shall be paid to the debtor.
Within a reasonable time after the exercise of an Option, the
Corporation shall cause to be delivered to the person entitled thereto, a
certificate for the Shares purchased pursuant to the exercise of the Option,
subject to the deposit of such certificate as collateral security for a loan
as described in the preceding paragraph. If the Option shall have been
exercised with respect to less than all of the Shares subject to the Option,
the Corporation shall maintain records indicating the number of Shares with
respect to which the Option remains available for exercise and, absent
manifest error, the Corporation's records shall be determinative.
In lieu of the foregoing option exercise payment methods, the Option
holder may deliver with the Exercise Notice (A) shares of the Corporation's
Common Stock owned by the holder having a Fair Market Value calculated as of
the date of the Option exercise equal to the sum of (i) the aggregate Option
exercise price of the Shares with respect to which such Option or portion is
being exercised and (ii) applicable withholding taxes, duly endorsed for
transfer to the Corporation, or (B) written instructions to withhold shares
of the Corporation's Common Stock issuable to the holder upon exercise of the
Option being exercised, having a Fair Market Value calculated as of the date
of the Option exercise equal to the sum of (i) the aggregate Option exercise
price of the Shares with respect to which such Option or portion is being
exercised (including the Shares to be withheld) and (ii) applicable
withholding taxes. Notwithstanding the foregoing, Option holders may not
utilize these alternative methods of payment in connection with incentive
stock options outstanding on November 15, 1995.
Notwithstanding any other provision of the Plan or of any Option, no
Option granted pursuant to the Plan may be exercised at any time when the
Option or the granting or exercise thereof violates any law or governmental
order or regulation.
11. CONSIDERATION FOR OPTIONS. The Corporation shall obtain such
consideration for the grant of an Option as the Committee in its discretion
may determine.
12. NON-TRANSFERABILITY OF OPTIONS. Options and all other rights
thereunder shall be non-transferable or non-assignable by the holder thereof
except to the extent that the estate of a deceased holder of an Option may be
permitted to exercise them. Options may be exercised or surrendered during
the holder's lifetime only by the holder thereof.
22
<PAGE>
13. TERMINATION OF EMPLOYMENT. All or any part of any Option, to the
extent unexercised, shall terminate immediately: (i) in the case of an
employee, upon the cessation or termination for any reason of the holder's
employment by the Corporation or any Subsidiary, or (ii) in the case of a
director or Consultant who is not an employee, upon the holder's ceasing to
serve as a director or Consultant of the Corporation or any Subsidiary,
except that the holder shall have until the end of the tenth business day
following the cessation of his employment with the Corporation or its
Subsidiaries or his service as a director or Consultant of the Corporation or
its Subsidiaries, and no longer, to exercise any unexercised Option that he
could have exercised on the day on which such employment or service
terminated; provided, that such exercise must be accomplished prior to the
expiration of the term of such Option. Notwithstanding the foregoing, if the
cessation of employment or service is due to retirement on or after attaining
the age of sixty-five (65) years, or to disability (to an extent and in a
manner as shall be determined in each case by the Committee in its sole
discretion) or to death, the holder or the representative of the estate of a
deceased holder shall have the privilege of exercising the Options which are
unexercised at the time of such retirement, or of such disability or death;
provided, however, that such exercise must be accomplished prior to the
expiration of the term of such Option and (a) within three months of the
holder's retirement or disability, or (b) within six months of the holder's
death, as the case may be. If the employment or service of any Option holder
with the Corporation or its Subsidiaries shall be terminated because of the
Option holder's violation of the duties of such employment or service with
the Corporation or its Subsidiaries as he may from time to time have, the
existence of which violation shall be determined by the Board in its sole
discretion (which determination by the Board shall be conclusive), all
unexercised Options of such Option holder shall terminate immediately upon
such termination of the holder's employment or service with the Corporation
or its Subsidiaries, and an Option holder whose employment or service with
the Corporation or its Subsidiaries is so terminated, shall have no right
after such termination to exercise any unexercised Option he might have
exercised prior to the termination of his employment or service with the
Corporation or its Subsidiaries.
14. ADJUSTMENT PROVISION. If prior to the complete exercise of any
Option there shall be declared and paid a stock dividend upon the Shares or
if the Shares shall be split up, converted, exchanged, reclassified, or in
any way substituted for, then the Option, to the extent that it has not been
exercised, shall entitle the holder thereof upon the future exercise of the
Option to such number and kind of securities or cash or other property
subject to the terms of the Option to which he would have been entitled had
he actually owned the Shares subject to the unexercised portion of the Option
at the time of the occurrence of such stock dividend, split-up, conversion,
exchange, reclassification or substitution, and the aggregate purchase price
upon the future exercise of the Option shall be the same as if the originally
optioned Shares were being purchased thereunder.
Any fractional shares or securities issuable upon the exercise of the
Option as a result of such adjustment shall be payable in cash based upon the
Fair Market Value of such shares or securities at the time of such exercise.
If any such event should occur, the number of Shares with respect to which
Options remain to be issued, or with respect to which Options may be
reissued, shall be adjusted in a similar manner.
23
<PAGE>
Notwithstanding any other provision of this Plan, in the event of a
recapitalization, merger, consolidation, rights offering, reorganization,
liquidation, or other change in the Corporation's corporate structure or
outstanding Shares, the Committee may make such equitable adjustments to the
number of Shares and class of shares available hereunder as it shall deem
appropriate to prevent dilution or enlargement of rights.
15. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT. The
Corporation may postpone the issuance and delivery of Shares pursuant to the
grant or exercise of any Option until (a) the admission of such Shares to
listing on any stock exchange on which Shares of the Corporation of the same
class are then listed, and (b) the completion of such registration or other
qualification of such Shares under any State or Federal law, rule or
regulation as the Corporation shall determine to be necessary or advisable.
Any holder of an Option shall make such representations and furnish such
information as may, in the opinion of counsel for the Corporation, be
appropriate to permit the Corporation, in the light of the then existence or
non-existence with respect to such Shares of an effective time to time
amended (the "Securities Act"), to issue the Shares in compliance with the
provisions of the Securities Act or any comparable act. The Corporation
shall have the right, in its sole discretion, to legend any Shares which may
be issued pursuant to the grant or exercise of any Option, or may issue stop
transfer orders in respect thereof.
16. INCOME TAX WITHHOLDING. If the Corporation or a Subsidiary shall
be required to withhold any amounts by reason of any Federal, State or local
tax rules or regulations in respect of the issuance of Shares pursuant to the
exercise of any Option, the Corporation or the Subsidiary shall be entitled
to deduct and withhold such amounts from any cash payments to be made to the
holder of such Option. In any event, the holder shall make available to the
Corporation or Subsidiary, promptly when requested by the Corporation or such
Subsidiary, sufficient funds to meet the requirements of such withholding;
and the Corporation or Subsidiary shall be entitled to take and authorize
such steps as it may deem advisable in order to have such funds made
available to the Corporation or Subsidiary out of any funds or property due
or to become due to the holder of such Option.
17. ADMINISTRATION AND AMENDMENT OF THE PLAN. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and
conditions of, any Option not theretofore granted, and the Board of Directors
or the Committee, with the consent of the affected holder of an Option, may
at any time withdraw or from time to time amend the Plan as it relates to,
and the terms and conditions of, any outstanding Option. Notwithstanding the
foregoing, any amendment by the Board of Directors or the Committee which
would (i) increase the number of Shares issuable under the Plan or to any
individual, (ii) materially increase the benefits accruing to Eligible
Persons under the Plan, or (iii) change the class of Eligible Persons, shall
be subject to the approval of the shareholders of the Corporation within one
year of such amendment. Effective August 11, 1999, without the prior approval
of the Corporation's shareholders, options issued hereunder will not be
re-priced by lowering the option exercise price of a previously granted
award, or by cancellation of outstanding options with subsequent replacement,
or re-grant of options with lower exercise prices.
24
<PAGE>
Determinations of the Committee as to any question which may arise with
respect to the interpretation of the provisions of the Plan and Options shall
be final. The Committee may authorize and establish such rules, regulations
and revisions thereof not inconsistent with the provisions of the Plan, as it
may deem advisable to make the Plan and Options effective or provide for
their administration, and may take such other action with regard to the Plan
and Options as it shall deem desirable to effectuate their purpose.
The Plan is intended to comply with Rule l6b-3 under the Exchange Act.
Any provision inconsistent with such Rule shall be inoperative and shall not
affect the validity of the Plan.
18. NO RIGHT OF EMPLOYMENT OR SERVICE. Nothing contained herein or in
an Option shall be construed to confer on any Eligible Person any right to be
continued in the employ or service of the Corporation or any Subsidiary or
derogate from any right of the Corporation and any Subsidiary to retire,
request the resignation of or discharge such Eligible Person (without or with
pay), at any time, with or without cause.
19. FINAL ISSUANCE DATE. No Option shall be granted under the Plan
after November 7, 2001.
25
<PAGE>
ALLIANCE PHARMACEUTICAL CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS --- DECEMBER 10, 1999
The undersigned, revoking any proxy heretofore given, hereby appoints Carroll O.
Johnson, Stephen M. McGrath and Duane J. Roth, or any one of them, Proxies of
the undersigned with full power of substitution, with respect to all of the
shares of the common stock which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of Alliance Pharmaceutical Corp. (the
"Corporation") to be held on December 10, 1999, at the offices of the
Corporation at 6175 Lusk Boulevard, San Diego, California 92121 at 10:00 a.m.,
San Diego time, or any adjournment thereof.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED FOR ELECTION AS DIRECTORS, FOR AUTHORIZATION OF ADDITIONAL
SHARES OF COMMON STOCK UNDER THE 1991 STOCK OPTION PLAN, AND FOR RATIFICATION OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30,
2000. If specific instructions are indicated, this Proxy will be voted in
accordance therewith.
In their discretion, the Proxies are authorized to transact such other business
as may properly come before the meeting or any adjournment thereof.
The Board of Directors has proposed all matters to be voted upon and recommends
a vote FOR all nominees for election as directors, FOR authorization of
additional shares of common stock under the 1991 Stock Option Plan, and FOR
ratification of Ernst & Young LLP as independent auditors for the fiscal year
ending June 30, 2000. Approval of any matter in this proxy is not related to or
conditioned on the approval of any other matter.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Election of Directors / / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
DR. PEDRO CUATRECASAS CARROLL O. JOHNSON STEPHEN M. MCGRATH
DONALD E. O'NEILL DR. HELEN M. RANNEY DR. JEAN G. RIESS
DUANE J. ROTH THEODORE D. ROTH DR. THOMAS F. ZUCK
2. Authorization of Additional Shares of Common Stock under the 1991 Stock
Option Plan
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of Ernst & Young LLP as independent auditors
/ / FOR / / AGAINST / / ABSTAIN
(To be completed and signed on reverse side)
</TABLE>
<PAGE>
Dated: _________________________________________________, 1999
______________________________________________________________
______________________________________________________________
Please sign exactly as name appears hereon. If the shares are
registered in the names of two or more persons, each should sign.
Executors, administrators, trustees, guardians, attorneys-in-fact,
corporate officers, general partners and other persons acting in
a representative capacity should add their titles.
The above signed hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and the Proxy Statement furnished herewith.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POST-PAID RETURN ENVELOPE.
