<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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 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:
<PAGE>
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
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
Wednesday, November 8, 2000, at offices of the Corporation at 9333 Genesee
Avenue, Suite 300, San Diego, California 92121 for the following purposes:
1. To elect ten directors of the Corporation.
2. To consider and act upon a proposal to amend the
Corporation's Certificate of Incorporation to
increase the number of authorized shares of Common
Stock from 75,000,000 shares to 125,000,000 shares,
as described in the attached Proxy Statement.
3. To approve the 2000 Stock Option Plan of Alliance
Pharmaceutical Corp.
4. 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, 2001.
5. 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 at the close
of business on September 14, 2000, 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: October 5, 2000
<PAGE>
ALLIANCE PHARMACEUTICAL CORP.
3040 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
--------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
November 8, 2000
--------------------
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 Wednesday, November 8, 2000, at 10:00 a.m. at offices of the
Corporation at 9333 Genesee Avenue, Suite 300, 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, California 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 October 5, 2000.
The Board of Directors has fixed the close of business on September
14, 2000 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 47,644,596 shares of
common stock, par value $.01 per share, of the Corporation (the "Common
Stock") were issued and outstanding and entitled to one vote on each matter
to be voted upon at the Meeting.
All votes will be tabulated by the inspector of election appointed
for the Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the 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 ten directors listed herein, FOR an increase
in the number of shares of Common Stock authorized for issuance under the
Corporation's Certificate of Incorporation, FOR the 2000 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, 2001, 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
<PAGE>
services. The 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 $4,000. 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
Ten 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., Fred M. Hershenson, Ph.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 September 14, 2000:
DUANE J. ROTH. Mr. Roth is 50 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 49 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 64 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.
FRED M. HERSHENSON, PH.D. Dr. Hershenson is 59 and was elected as a
director of the Corporation in August 2000. In July 2000, he retired as
Senior Vice President - Drug Development of Warner-Lambert Company. During
his 19 year tenure with Warner-Lambert, Dr. Hershenson served in several
executive capacities including Senior Vice President, Technical Development.
For the thirteen years prior to his employment at Warner-Lambert, he held
several managerial positions with G.D. Searle & Company. He has served as an
Adjunct Professor of Medicinal Chemistry at the University of Michigan. Dr.
Hershenson received his Ph.D. from the University of Illinois.
<PAGE>
CARROLL O. JOHNSON. Mr. Johnson is 67 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.
STEPHEN M. MCGRATH. Mr. McGrath is 64 and has served as a director
of the Corporation since 1989. In May 1998, he retired as Executive Vice
President of CIBC Oppenheimer & Co., Inc. and as the Director of its
Corporate Finance Department. For the eleven years prior to his employment by
CIBC 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 74 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.
HELEN M. RANNEY, M.D. Dr. Ranney is 80 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 63 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 66 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
<PAGE>
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 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 1999, 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
$38,000 for consulting services in the fiscal year ended June 30, 2000.
In December 1999, 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 $200,000 in February 2000. A subsidiary of the
Corporation has a one-year consulting agreement with Dr. Riess which will pay
him $100,000 through December 2000.
In connection with the sale of $25 million of common stock in June
1999, the Corporation paid Roth Capital Partners ("RCP") sales commissions of
$1.5 million and issued to RCP a 5-year warrant for 760,000 shares of common
stock, exercisable at $3.675 (a 150% premium to the market price at the
time). RCP was also paid sales commissions of $50,000 in connection with the
Corporation's sale of $10 million in debentures in August 2000. RCP also
provides financial advisory services to the Corporation from time to time.
Byron Roth, the president, chief executive officer and a principal
shareholder of RCP, is the brother of Duane J. Roth, Chief Executive Officer
and director of the Corporation and Theodore D. Roth, President, Chief
Operating Officer and director of the Corporation.
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 and Messrs. Johnson, D.
Roth and T. Roth.
<PAGE>
During the fiscal year ended June 30, 2000, there were five regular
meetings of the Board of Directors. The Compensation Committee held one
meeting, 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, 2000, one report, covering one transaction was filed late on
behalf of Dr. Cuatrecasas.
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
September 14, 2000 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>
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Common Stock
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP (1) CLASS (2)
---------------- ------------------------ ---------
<S> <C> <C>
Duane J. Roth 922,295 (3) 1.9%
Pedro Cuatrecasas, M.D. 123,000 (4) *
Fred M. Hershenson, Ph.D. 12,500 (5) *
Carroll O. Johnson 69,500 (6) *
Stephen M. McGrath 259,016 (7) *
Donald E. O'Neill 103,000 (8) *
Helen M. Ranney, M.D. 82,900 (9) *
Jean G. Riess, Ph.D. 177,733 (10) *
Theodore D. Roth 367,792 (11) *
Thomas F. Zuck, M.D. 57,800 (12) *
Harold W. DeLong 265,800 (13) *
N. Simon Faithfull, M.D., Ph.D. 137,096 (14) *
Artemios B. Vassos, M.D., F.A.C.P. 37,500 (15) *
All directors and executive officers as a group (22 persons) 3,199,659 6.4%
FMR Corp. 4,798,160 (16) 10.1%
82 Devonshire Street
Boston, MA 02109
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</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.
<PAGE>
(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) 285,778 shares owned by Mr. D. Roth, (ii) 633,900
shares subject to options granted by the Corporation under its 1991
Stock Option Plan ("the 1991 Plan"), and (iii) 2,617 shares owned by
Mr. Roth's spouse.
(4) Consists of (i) 73,000 shares owned by Dr. Cuatrecasas and
(ii) 50,000 shares subject to options granted by the
Corporation under the 1991 Plan.
(5) Consists of 12,500 shares subject to options granted to Dr.
Hershenson by the Corporation under the 1991 Plan.
(6) Consists of (i) 4,000 shares owned by Mr. Johnson and (ii) 65,500
shares subject to options granted by the Corporation under the 1991
Plan.
(7) Consists of (i) 177,683 shares owned by Mr. McGrath, (ii) 33,333
shares subject to warrants, and (iii) 48,000 shares subject to
options granted by the Corporation under the 1991 Plan.
(8) Consists of (i) 25,000 shares owned by Mr. O'Neill, (ii) 76,000 shares
subject to options granted by the Corporation under the 1991 Plan, and
(iii) 2,000 shares owned by Mr. O'Neill's spouse.
(9) Consists of (i) 6,900 shares owned by Dr. Ranney and (ii) 76,000
shares subject to options granted by the Corporation under the 1991
Plan.
(10) Consists of (i) 79,733 shares owned by Dr. Riess and (ii) 98,000
shares subject to options granted by the Corporation under the 1991
Plan.
(11) Consists of (i) 48,042 shares owned by Mr. T. Roth and (ii) 319,750
shares subject to options granted by the Corporation under the 1991
Plan.
(12) Consists of (i) 9,800 shares owned by Dr. Zuck and (ii) 48,000
shares subject to options granted by the Corporation under the 1991
Plan.
(13) Consists of (i) 20,000 shares owned by Mr. DeLong, (ii) 245,000 shares
subject to options granted by the Corporation under the 1991 Plan, and
(iii) 800 shares owned by Mr. DeLong's minor children.
(14) Consists of (i) 19,096 shares owned by Dr. Faithfull and (ii)
118,000 shares subject to options granted by the
Corporation under the 1991 Plan.
(15) Consists of 37,500 shares subject to options granted to Dr. Vassos
by the Corporation under the 1991 Plan.
(16) FMR Corp has sole power to dispose of all such shares and has sole
voting power with respect to 260 shares. Fidelity Management and
Research Company ("Fidelity"), a subsidiary of FMR Corp., may be deemed
the beneficial owner of 4,797,900 shares as a result of acting as
investment adviser to various registered investment companies. Fidelity
Management Trust Company, a wholly-owned subsidiary of FMR Corp., was
the beneficial owner of 260 shares as a result of it serving as an
investment manager of the institutional accounts. The beneficial
ownership of the shares arises in the context of passive investment
activities only by various investment accounts managed by the Fidelity
companies and their affiliates on a discretionary basis (the "Fidelity
Accounts"). The Fidelity Accounts are institutional investors engaged
in the investment business. 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.
Edward C. Johnson III, 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.
<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, 2000, 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 2000 416,000 85,000 - 194,000 11,822(b)
Chairman and 1999 430,700 - - 150,000 5,289(c)
Chief Executive Officer 1998 388,000 40,000 - 150,000 -
Theodore D. Roth 2000 310,000 47,000 - 147,000 3,859(d)
President and 1999 289,800 - 36,300(e) 100,000 1,256(f)
Chief Operating Officer 1998 257,000 60,000 38,800(g) 75,000 -
Harold W. DeLong 2000 222,000 35,000 - 85,000 -
Executive Vice President - 1999 220,200 - - 75,000 -
Business Development 1998 196,600 25,000 - 30,000 -
Artemios B. Vassos 2000 249,500 25,000 126,300(h) 60,000 -
Executive Vice President 1999 66,200 - - 75,000 -
and Chief Scientific Officer 1998 - - - - -
N. Simon Faithfull 2000 214,000 25,000 - 50,000 -
Vice President - 1999 212,400 - - 30,000 -
Medical Affairs Development 1998 194,900 20,000 - 25,000 -
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</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 ($100,000) paid by the Corporation
during 2000 with respect to a split-dollar insurance agreement.
(c) 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.
(d) 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 2000 with respect to a split-dollar life insurance agreement.
(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) Includes forgiveness of $35,100 of principal and interest on a relocation
loan.
(h) Includes relocation expense and tax reimbursement of $63,600 and
forgiveness of $50,700 of principal and interest on a loan.
<PAGE>
EMPLOYMENT ARRANGEMENTS
On June 1, 1995, the Corporation loaned Simon Faithfull $70,000. The
loan accrued interest at the rate of 9% per annum. The loan was due and payable
on demand; provided that unless and until demand is made, principal and interest
were payable in biweekly installments of $500 each. The largest outstanding
balance due since the beginning of the last fiscal year was $59,160 and the
outstanding balance of $53,687 was paid in full on February 24, 2000. The note
was 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 $134,000 and the outstanding balance on September 14, 2000 was
$87,500.
(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 $118,300 and the outstanding
balance on September 14, 2000 was $91,300.
(3) A $180,000 loan repayable with accrued interest upon 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 of the loans to Dr. Vassos accrue 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 Theodore
D. 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
<PAGE>
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 $4 million of key person
coverage, with all remaining payments to be paid to Theodore Roth or his
beneficiaries.
STOCK OPTION GRANTS AND EXERCISES
The Corporation has granted options to its executive officers under its
1983 Incentive Stock Option Plan (which plan expired on October 1, 1993), its
1983 Non-Qualified Stock Option Program (which plan expired on February 24,
1999), and its 1991 Stock Option Plan. No stock appreciation rights ("SARs")
have been granted by the Corporation.
The following table sets forth certain information concerning options
granted during fiscal 2000 to the Named Executive Officers:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
------------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of
Individual Grants Stock Price Appreciation for
Option Term (1)
---------------------------------------------------------------------------------------------------
Securities % of Total
Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price Expiration
Name Granted (#) (2) in Fiscal Year ($/Share) (5) Date 5% ($) 10% ($)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Duane J. Roth 84,000 (3) 3.6% 2.75 8/11/09 145,300 368,100
110,000 (4) 4.7% 7.75 12/28/09 536,100 1,358,700
Theodore D. Roth 47,000 (3) 2.0% 2.75 8/11/09 81,300 206,000
100,000 (4) 4.3% 7.75 12/28/09 487,400 1,235,100
Harold W. DeLong 35,000 (3) 1.5% 2.75 8/11/09 60,500 153,400
50,000 (4) 2.1% 7.75 12/28/09 243,700 617,600
Artemios B. Vassos 25,000 (3) 1.1% 2.75 8/11/09 43,200 109,600
35,000 (4) 1.5% 7.75 12/28/09 170,600 432,300
N. Simon Faithfull 25,000 (3) 1.1% 2.75 8/11/09 43,200 109,600
25,000 (4) 1.1% 7.75 12/28/09 121,900 308,800
------------------------------------------------------------------------------------------------------------------------------------
</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 2000 to the Named Executive Officers were
non-qualified stock options under the 1991 Plan.
(3) Options are exercisable in increments of 50% on date of issuance and
25% on each of the next two subsequent anniversaries.
(4) Options are exercisable in increments of 20% per year commencing one
year after the date of issuance and on each subsequent
anniversary.
(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.
The following table summarizes options exercised during fiscal 2000 and
presents the value of unexercised options held by the Named Executive Officers
at fiscal year end:
<PAGE>
<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>
Duane J. Roth - - 495,400 (E) 1,886,625 (E)
367,000 (U) 1,388,875 (U)
Theodore D. Roth - - 248,000 (E) 857,950 (E)
238,500 (U) 952,875 (U)
Harold W. DeLong - - 199,500 (E) 693,513 (E)
135,000 (U) 596,563 (U)
Artemios B. Vassos - - 31,250 (E) 270,313 (E)
103,750 (U) 720,938 (U)
N. Simon Faithfull 43,000 479,700 90,750 (E) 385,625 (E)
86,500 (U) 374,875 (U)
-------------------------------------------------------------------------------------------------------------------------------
</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.
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
<PAGE>
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 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 2000 fiscal year
compensation, however, was dependent upon performance and provided no dollar
guarantees.
SECTION 162(m)
Section 162(m) of the Internal Revenue Code limits the deductibility
by a publicly held corporation of compensation paid in a taxable year to the
Chief Executive Officer and any other executive officer whose compensation
<PAGE>
is required to be reported in the Summary Compensation Table to $1 million.
For the 1999 taxable year, the Corporation did not reach and, therefore was
not affected by, this limitation.
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, 2000,
as well as with that of an overall stock market index (Nasdaq) and a published
industry index (Nasdaq Pharmaceutical):
<TABLE>
<CAPTION>
ALLP NASDAQ (US) NASDAQ PHARM
<S> <C> <C> <C>
6/30/1995 $100.00 $100.00 $100.00
6/30/1996 $169.23 $171.31 $100.00
6/30/1997 $103.21 $208.35 $195.99
6/30/1998 $42.95 $274.30 $199.42
6/30/1999 $26.92 $394.97 $204.26
6/30/2000 $115.38 $583.48 $639.98
</TABLE>
<TABLE>
<CAPTION>
STOCK
PRICE VALUE VALUE
<S> <C> <C> <C>
6/30/1995 9.75 228.371 204.53
6/30/1996 16.50 391.217 400.856
6/30/1997 10.06 475.806 407.872
6/30/1998 4.188 626.431 417.766
6/30/1999 2.625 902.001 582.705
6/30/2000 11.250 1332.49 1308.944
</TABLE>
2. PROPOSED AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
The Corporation is proposing an amendment to Paragraph 4 of the
Corporation's Certificate of Incorporation, as amended, to increase the number
of authorized shares of Common Stock from 75,000,000 shares to 125,000,000
shares (the "Common Stock Amendment").
Pursuant to its Certificate of Incorporation, as amended, the
Corporation is presently authorized to issue 75,000,000 shares of Common Stock
and 5,000,000, shares of preferred stock, $.01 par value. On September 14, 2000,
if all of the shares of Common Stock currently reserved for issuance upon the
exercise of outstanding warrants and options were issued, the number of shares
of Common Stock that would be outstanding is 55,980,056 shares. The Company has
<PAGE>
also reserved an additional 3,364,396 shares of Common Stock for issuance
upon the conversion of its Series F Preferred Stock and all outstanding
convertible debt.
On August 16, 2000, the Board of Directors approved an amendment to
the Corporation's Certificate of Incorporation providing for an increase in
the authorized number of shares of Common Stock from 75,000,000 shares to
125,000,000 shares. The Board of Directors deems it to be in the best
interest of the Corporation that the Corporation have available additional
authorized shares of Common Stock for additional public offerings and private
placements, acquisitions, financings, stock dividends, personnel recruitment
and retention, and for other opportunities which may arise in the future. The
additional shares of Common Stock would be available for issuance by action
of the Board of Directors without the need for further action by
shareholders, unless such action were specifically required by applicable law
or rules of any stock exchange on which the Corporation's securities may then
be listed. Under applicable laws of the State of New York, shareholders of
the Corporation have no pre-emptive rights with respect to the authorization
or issuance of additional shares of the Corporation's capital stock.
The proposed increase in the authorized number of shares of Common
Stock could have a number of effects on the Corporation's shareholders
depending upon the exact nature and circumstances of any actual issuance of
authorized but unissued shares. The increase could have an anti-takeover
effect, in that additional shares could be issued (within the limits imposed
by applicable law) in one or more transactions that could make a change in
control or takeover of the Corporation more difficult. For example,
additional shares could be issued by the Corporation so as to dilute the
stock ownership or voting rights of persons seeking to obtain control of the
Corporation. Similarly, the issuance of additional shares to certain persons
allied with the Corporation's management could have the effect of making it
more difficult to remove the Corporation's current management by diluting the
stock ownership or voting rights of persons seeking to cause such removal.
In addition, an issuance of additional shares by the Corporation
could have an effect on the potential realizable value of a shareholder's
investment. In the absence of a proportionate increase in the Corporation's
earnings and book value, an increase in the aggregate number of outstanding
shares of the Corporation caused by the issuance of the additional shares
would dilute the earnings per share and book value per share of all
outstanding shares of the Corporation's Common Stock. If such factors were
reflected in the price per share of Common Stock, the potential realizable
value of a shareholder's investment could be adversely affected.
Under New York law, the affirmative vote of the holders of
securities representing a majority of the voting power entitled to vote at
the Meeting is required to adopt the proposed Common Stock Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION
OF THE COMMON STOCK AMENDMENT.
3. PROPOSED ADOPTION OF THE 2000 STOCK OPTION PLAN
On August 16, 2000, the Board of Directors adopted the 2000 Stock
Option Plan (the "2000 Plan"). The Board believes that the 2000 Plan is
necessary to meet the Corporation's objectives of recruiting, 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 only existing stock option plan of
the Corporation, the 1991 Stock Option Plan (the "1991 Plan"), expires in
November 2001, and the Board believes it is important to have a new stock
option plan in effect when the 1991 Plan expires. The 2,100,000 shares
authorized under the 2000 Plan represent 4% of the Corporation's Common Stock
on a fully diluted basis as of June 30, 2000.
DESCRIPTION OF THE PLAN
The following is a summary of the principal features of the 2000
Plan:
PURPOSE
<PAGE>
The purpose of the 2000 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 2000 Plan is administered by the "Plan Administrator" which
consists of the Board of Directors of the Corporation, unless the Board of
Directors appoints a committee to administer the 2000 Plan. The Plan
Administrator has full authority, subject to the provisions of the 2000 Plan,
to determine the eligible individuals who are to receive option grants under
the 2000 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 2000 PLAN
Under the 2000 Plan, 2,100,000 shares of Common Stock have been
reserved for issuance upon the exercise of options granted pursuant to the
terms of the 2000 Plan. The 2000 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 or
its subsidiaries. NSOs may be granted to employees, nonemployee directors and
consultants who provide services which are deemed important to the
Corporation or its subsidiaries. If any options granted under the 2000 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 new grants under the
2000 Plan. Options to purchase more than 200,000 shares may not be granted to
any individual in a single calendar year under the 2000 Plan.
TERMS OF OPTIONS
Each option granted under the 2000 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 2000 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 2000 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 the shares ($.01 per share) or 100% of the fair market value
of the 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 2000
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.
<PAGE>
DURATION, AMENDMENT AND TERMINATION
The 2000 Plan expires on August 15, 2010. The 2000 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 2000 Plan or for any individual, change the class of
eligible persons under the 2000 Plan. Furthermore, no action may, without the
consent of an optionee, adversely affect his/her rights under any option
theretofore granted. Without the approval of the Corporation's shareholders,
the 2000 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 2000 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 3 to approve the
adoption of the 2000 Plan. 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 adoption of the 2000 Plan of the Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE
2000 STOCK OPTION PLAN.
4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP,
independent auditors for the Corporation for the year ending June 30, 2000,
to serve as the independent auditors for the Corporation for the fiscal year
ending June 30, 2001. 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.
5. 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.
<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 2001
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 12, 2001, 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 12, 2000. The address of the Corporation's executive office is 3040
Science Park Road, San Diego, California 92121.
INFORMATION INCORPORATED BY REFERENCE
Audited financial statements, management's discussion and analysis
of financial condition and results of operations, and quantitative and
qualitative disclosures about market risk are incorporated by reference
herein to the Annual Report to Shareholders accompanying this Proxy Statement.
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: October 5, 2000
San Diego, California
<PAGE>
2000 STOCK OPTION PLAN
OF
ALLIANCE PHARMACEUTICAL CORP.
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.
(h) "Plan" shall mean this 2000 Stock Option Plan of
Alliance Pharmaceutical Corp., as adopted by the Board of Directors on August
16, 2000, as such Plan from time to time may be amended.
1
<PAGE>
(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. During any period of time in which the Plan is
administered by the Board of Directors, all references in the Plan to the
Committee shall be deemed to refer to the Board.
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 2,100,000
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 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 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
2
<PAGE>
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 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.
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.
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.
3
<PAGE>
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.
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 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
4
<PAGE>
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 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.
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
5
<PAGE>
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.
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
6
<PAGE>
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, or (ii) change the class of Eligible Persons, shall be subject to
the approval of the shareholders of the Corporation within one year of such
amendment. In addition, 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.
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.
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.
7
<PAGE>
19. FINAL ISSUANCE DATE. No Option shall be granted under the Plan
after August 15, 2010.
8
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
--------
Report of Ernst & Young LLP, Independent Auditors F-2
Consolidated Balance Sheets at June 30, 2000 and 1999 F-3
Consolidated Statements of Operations for the Years
Ended June 30, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years
Ended June 30, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7 - F-15
No consolidated financial statement schedules are filed herewith because they
are not required or are not applicable, or because the required information is
included in the consolidated financial statements or notes thereto.
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Alliance Pharmaceutical Corp.
We have audited the accompanying consolidated balance sheets of Alliance
Pharmaceutical Corp. and subsidiaries as of June 30, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Alliance
Pharmaceutical Corp. and subsidiaries at June 30, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 2000, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
August 1, 2000
F-2
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30,
2000 1999
-------------------- ---------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,721,000 $ 19,081,000
Short-term investments 4,806,000 -
Research revenue receivable 146,000 4,875,000
Other current assets 1,322,000 413,000
-------------------- ---------------------
Total current assets 34,995,000 24,369,000
PROPERTY, PLANT AND EQUIPMENT - NET 20,309,000 24,621,000
PURCHASED TECHNOLOGY - NET 10,065,000 11,361,000
RESTRICTED CASH 5,000,000 5,000,000
INVESTMENT IN JOINT VENTURE 5,000,000 -
OTHER ASSETS - NET 580,000 633,000
-------------------- ---------------------
$ 75,949,000 $ 65,984,000
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,983,000 $ 4,910,000
Accrued expenses 4,101,000 4,280,000
Deferred revenue 10,000,000 -
Current portion of long-term debt 4,586,000 4,170,000
-------------------- ---------------------
Total current liabilities 23,670,000 13,360,000
LONG-TERM DEBT 19,013,000 10,499,000
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; 5,000,000 shares authorized; Series D
Preferred stock - 0 and 500,000 shares issued and outstanding
at June 30, 2000 and 1999, respectively; liquidation preference of
$10,000,000 at June 30, 1999 - 5,000
Series F Preferred stock - 500,000 and 0 shares issued and outstanding
at June 30, 2000 and 1999, respectively; liquidation preference of
$20,000,000 at June 30, 2000 5,000 -
Common stock - $.01 par value; 75,000,000 shares authorized; 47,233,454
and 43,510,049 shares issued and outstanding at
June 30, 2000 and 1999, respectively 472,000 435,000
Additional paid-in capital 402,470,000 368,409,000
Accumulated comprehensive income (loss) 3,510,000 -
Accumulated deficit (373,191,000) (326,724,000)
-------------------- ---------------------
Total stockholders' equity 33,266,000 42,125,000
-------------------- ---------------------
$ 75,949,000 $ 65,984,000
==================== =====================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended June 30,
2000 1999 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUES:
License and research revenue $ 16,000,000 $ 8,251,000 $ 21,209,000
OPERATING EXPENSES:
Research and development 54,605,000 60,427,000 50,084,000
General and administrative 9,760,000 8,566,000 7,886,000
------------------ ------------------ ------------------
64,365,000 68,993,000 57,970,000
------------------ ------------------ ------------------
LOSS FROM OPERATIONS (48,365,000) (60,742,000) (36,761,000)
IMPUTED INTEREST EXPENSE ON CONVERTIBLE NOTES (3,653,000) (844,000) -
INVESTMENT INCOME 7,512,000 1,876,000 4,332,000
INTEREST EXPENSE (1,961,000) (1,063,000) (574,000)
---------------- ---------------- ----------------
NET LOSS (46,467,000) (60,773,000) (33,003,000)
IMPUTED DIVIDENDS ON PREFERRED STOCK - (1,700,000) -
------------------ ------------------ ------------------
NET LOSS APPLICABLE TO COMMON SHARES $ (46,467,000) $ (62,473,000) $ (33,003,000)
================== ================== ==================
NET LOSS PER COMMON SHARE:
Basic and diluted $ (1.03) $ (1.89) $ (1.04)
================== ================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 45,203,000 33,045,000 31,749,000
================== ================== ==================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1997 - $ - 31,165,000 $ 311,000
Exercise of stock options and warrants 104,000 1,000
Sale of convertible Series D Preferred Stock 500,000 5,000
Payment related to acquired in-process technology 706,000 8,000
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 19,000
Net unrealized loss on available-for-sale securities
Net loss
--------------- -------------- -------------- ----------------
BALANCES AT JUNE 30, 1998 500,000 5,000 31,994,000 320,000
Exercise of stock options and warrants 96,000 1,000
Issuance of warrants
Sale of common stock 9,500,000 95,000
Sale of convertible Series E-1 Preferred Stock 100,000 1,000
Conversion and redemption of convertible Series E-1
Preferred Stock to common shares (100,000) (1,000) 1,859,000 18,000
Imputed interest expense on convertible notes
Imputed dividends on Series E-1 Preferred Stock
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 61,000 1,000
Net unrealized loss on available-for-sale securities
Net loss
--------------- -------------- -------------- ----------------
BALANCES AT JUNE 30, 1999 500,000 5,000 43,510,000 435,000
Exercise of stock options and warrants 663,000 6,000
Issuance of warrants and stock options
Issuance of stock in exchange for technology 1,135,000 11,000
Sale of convertible Series F Preferred Stock 500,000 5,000
Conversion of convertible Series D Preferred Stock (500,000) (5,000) 1,000,000 10,000
Conversion of $1.8 million convertible debt 900,000 9,000
Imputed interest expense on convertible notes
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 25,000 1,000
Net unrealized gain on available-for-sale securities
Net loss
--------------- -------------- -------------- ----------------
BALANCES AT JUNE 30, 2000 500,000 $ 5,000 47,233,000 $ 472,000
=============== ============== ============== ================
</TABLE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
ADDITIONAL ACCUMULATED
PAID-IN COMPREHENSIVE ACCUMULATED
CAPITAL INCOME (LOSS) DEFICIT
----------------- ----------------- -----------------
<S> <C> <C> <C>
BALANCES AT JUNE 30, 1997 $ 322,025,000 $ 243,000 $ (231,248,000)
Exercise of stock options and warrants 741,000
Sale of convertible Series D Preferred Stock 9,595,000
Payment related to acquired in-process technology 7,492,000
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 141,000
Net unrealized loss on available-for-sale securities (221,000)
Net loss (33,003,000)
----------------- ----------------- -----------------
BALANCES AT JUNE 30, 1998 339,994,000 22,000 (264,251,000)
Exercise of stock options and warrants
Issuance of warrants 922,000
Sale of common stock 21,415,000
Sale of convertible Series E-1 Preferred Stock 5,582,000
Conversion and redemption of convertible Series E-1
Preferred Stock to common shares (2,248,000)
Imputed interest expense on convertible notes 844,000
Imputed dividends on Series E-1 Preferred Stock 1,700,000 (1,700,000)
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 200,000
Net unrealized loss on available-for-sale securities (22,000)
Net loss (60,773,000)
----------------- ----------------- -----------------
BALANCES AT JUNE 30, 1999 368,409,000 - (326,724,000)
Exercise of stock options and warrants 2,958,000
Issuance of warrants and stock options 1,277,000
Issuance of stock in exchange for technology 4,989,000
Sale of convertible Series F Preferred Stock 19,215,000
Conversion of convertible Series D Preferred Stock (5,000)
Conversion of $1.8 million convertible debt 1,791,000
Imputed interest expense on convertible notes 3,653,000
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan 183,000
Net unrealized gain on available-for-sale securities 3,510,000
Net loss (46,467,000)
----------------- ----------------- -----------------
BALANCES AT JUNE 30, 2000 $ 402,470,000 $ 3,510,000 $ (373,191,000)
================= ================= =================
</TABLE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
TOTAL
COMPREHENSIVE
LOSS
-----------------
<S> <C>
BALANCES AT JUNE 30, 1997
Exercise of stock options and warrants
Sale of convertible Series D Preferred Stock
Payment related to acquired in-process technology
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan
Net unrealized loss on available-for-sale securities $ (221,000)
Net loss (33,003,000)
-----------------
BALANCES AT JUNE 30, 1998 $ (33,224,000)
=================
Exercise of stock options and warrants
Issuance of warrants
Sale of common stock
Sale of convertible Series E-1 Preferred Stock
Conversion and redemption of convertible Series E-1
Preferred Stock to common shares
Imputed interest expense on convertible notes
Imputed dividends on Series E-1 Preferred Stock
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan
Net unrealized loss on available-for-sale securities $ (22,000)
Net loss (60,773,000)
-----------------
BALANCES AT JUNE 30, 1999 $ (60,795,000)
=================
Exercise of stock options and warrants
Issuance of warrants and stock options
Issuance of stock in exchange for technology
Sale of convertible Series F Preferred Stock
Conversion of convertible Series D Preferred Stock
Conversion of $1.8 million convertible debt
Imputed interest expense on convertible notes
Issuance of stock in satisfaction of employer
matching contribution to 401(k) savings plan
Net unrealized gain on available-for-sale securities $ 3,510,000
Net loss (46,467,000)
-----------------
BALANCES AT JUNE 30, 2000 $ (42,957,000)
=================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended June 30,
2000 1999 1998
----------------- ------------------ -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (46,467,000) $ (60,773,000) $ (33,003,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation and amortization 6,344,000 6,265,000 5,064,000
Imputed interest expense on convertible notes 3,653,000 844,000 -
Expense associated with warrant issuance 1,431,000 160,000 -
Gain on sale of equity securities (6,282,000) - -
Receipt of equity securities in exchange for
technology (4,800,000) - -
Issuance of common stock in exchange for technology 5,000,000 - -
Non-cash compensation - net 406,000 201,000 320,000
Changes in operating assets and liabilities:
Research revenue receivable 4,729,000 1,972,000 403,000
Restricted cash and other assets (856,000) (5,038,000) 372,000
Accounts payable and accrued expenses and other (106,000) 1,553,000 (1,238,000)
Deferred revenue 10,000,000 - -
----------------- ------------------ -----------------
Net cash used in operating activities (26,948,000) (54,816,000) (28,082,000)
----------------- ------------------ -----------------
INVESTING ACTIVITIES:
Purchases of short-term investments - (23,711,000) (113,099,000)
Sales and maturities of short-term investments 9,785,000 61,735,000 131,874,000
Investment in joint venture (5,000,000) - -
Property, plant and equipment - net (736,000) (6,246,000) (10,057,000)
Payment for acquired in-process technology - - (57,000)
----------------- ------------------ -----------------
Net cash provided by investing activities 4,049,000 31,778,000 8,661,000
----------------- ------------------ -----------------
FINANCING ACTIVITIES:
Issuance of common stock and warrants 2,743,000 21,511,000 562,000
Issuance of convertible preferred stock - net 19,220,000 5,582,000 9,600,000
Redemption of preferred stock - (2,230,000) -
Proceeds from long-term debt 15,000,000 6,850,000 6,800,000
Principal payments on long-term debt (4,424,000) (1,403,000) (1,100,000)
----------------- ------------------ -----------------
Net cash provided by financing activities 32,539,000 30,310,000 15,862,000
----------------- ------------------ -----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,640,000 7,272,000 (3,559,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,081,000 11,809,000 15,368,000
----------------- ------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 28,721,000 $ 19,081,000 $ 11,809,000
================= ================== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,304,000 $ 1,104,000 $ 566,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Deferred interest expense on long-term debt $ 503,000 $ 728,000 -
Imputed dividends on preferred stock - $ 1,700,000 -
Issuance of common stock in connection with
acquired in-process technology - - $ 7,500,000
Issuance of common stock upon conversion of notes $ 1,800,000 - -
Issuance of common stock upon conversion of preferred stock $ 10,000,000 - -
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the
"Company" or "Alliance") are engaged in identifying, designing, and developing
novel medical products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Alliance
Pharmaceutical Corp., the accounts of its wholly owned subsidiary Astral, Inc.,
its wholly owned subsidiary MDV Technologies, Inc. ("MDV"), its wholly owned
subsidiary Alliance Pharmaceutical GmbH, from its inception in December 1998,
and its majority-owned subsidiary Talco Pharmaceutical, Inc. All significant
intercompany accounts and transactions have been eliminated. Certain amounts in
1999 and 1998 have been reclassified to conform to the current year's
presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid debt instruments.
Management has classified the Company's short-term investments as
available-for-sale securities in the accompanying financial statements.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of accumulated
comprehensive income (loss). The Company considers instruments purchased with
an original maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Cash, cash equivalents, and short-term investments are financial
instruments which potentially subject the Company to concentration of credit
risk. The Company invests its excess cash primarily in U.S. government
securities and debt instruments of financial institutions and corporations with
strong credit ratings. The Company has established guidelines relative to
diversification and maturities to maintain safety and liquidity. These
guidelines are reviewed periodically and modified to take advantage of trends in
yields and interest rates. The Company has not experienced any material losses
on its short-term investments.
PROPERTY, PLANT, EQUIPMENT, AND OTHER ASSETS
Buildings, furniture, and equipment are stated at cost and
depreciation is computed using the straight-line method over the estimated
useful lives of 3 to 25 years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the lease term. Technology and patent rights are amortized using
the straight-line method over 5 to 20 years.
PURCHASED TECHNOLOGY
The purchased technology was primarily acquired as a result of the
merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in
1989. The technology acquired is the Company's core perfluorochemical ("PFC")
technology and was valued based on an analysis of the present value of future
earnings anticipated from this technology at that time. The Company identified
alternative future uses for the PFC technology, including the OXYGENT-TM-
(temporary blood substitute) and LIQUIVENT-Registered Trademark- (intrapulmonary
oxygen carrier) products. Purchased technology also includes $2 million
F-7
<PAGE>
for technology capitalized as a result of the acquisition of BioPulmonics, Inc.
("BioPulmonics") in December 1991. Since the acquisition, an alternative future
use of the acquired technology has been pursued by the Company. An
intrapulmonary drug delivery system using the PFC-based liquid as a carrier (or
dispersing agent) is being developed by Alliance from the liquid ventilation
technology.
The PFC technology is the basis for the Company's main drug development
programs and is being amortized over a 20-year life. The PFC technology has a
net book value of $10.1 million and $11.2 million, and is reported net of
accumulated amortization of $13.2 million and $12 million at June 30, 2000 and
1999, respectively. The technology acquired from BioPulmonics has a net book
value of approximately $0 and $129,000 and is being amortized over five to seven
years and is reported net of accumulated amortization of $2 million and $1.9
million at June 30, 2000 and 1999, respectively.
The carrying value of purchased technology is reviewed periodically
based on the projected cash flows to be received from license fees, milestone
payments, royalties and other product revenues. If such cash flows are less than
the carrying value of the purchased technology, the difference will be charged
to expense.
ACQUIRED IN-PROCESS TECHNOLOGY
In November 1996, the Company acquired MDV which is engaged in the
development of FLOGEL-Registered Trademark-, intended for use as an
anti-adhesion treatment for persons undergoing abdominal or pelvic surgeries.
The consideration of $15.5 million was paid through the issuance of common
stock. The Company is obligated to pay up to $20 million in common stock or
cash if advanced clinical development or licensing milestones are achieved in
connection with MDV's technology. The Company will also make certain royalty
payments in cash on the sales of products, if any, developed from such
technology.
INVESTMENT IN JOINT VENTURE
In May 2000, the Company and Baxter Healthcare Corporation ("Baxter")
formed a joint venture, PFC Therapeutics, LLC ("PFC Therapeutics"), for the
manufacture, marketing, sales and distribution of OXYGENT in the United
States, Canada and countries in the European Union. The Company received a
prepaid royalty of $10 million from PFC Therapeutics, which is recorded as
deferred revenue as of June 30, 2000. The Company will recognize the revenue
as the royalties are earned and will record its portion of the income of the
joint venture as equity in income of the joint venture within the Company's
consolidated statement of operations.
REVENUE RECOGNITION
Revenue under collaborative research agreements is recognized as
services are provided and milestone payments are recognized upon the completion
of the milestone event or requirement under such agreements. Revenue from
product sales is recognized as products are shipped. The Company recognizes
revenue only on payments that are non-refundable, and defers revenue recognition
until performance obligations have been completed. Non-refundable contract fees
that reimburse the Company for previously incurred research and development are
recorded as revenue upon contract "execution."
In December 1999, the Securities and Exchange Commission released
Staff Accounting Bulletin No. 101 ("SAB No. 101"), Revenue Recognition in the
Financial Statements, which provides guidance on the recognition,
presentation and disclosure of revenue in the financial statements. The
application of SAB No. 101 is not expected to have a material impact on the
Company's financial statements.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenditures are charged to expense as
incurred.
ACCOUNTING FOR STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has
elected to retain its current intrinsic value-based method and will disclose the
pro forma effect of using the fair value-based method to account for its
stock-based compensation in its financial statements.
NET INCOME (LOSS) PER SHARE
The Company computes net loss per common share in accordance with
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 requires the presentation of basic and diluted earnings per share
amounts. Basic earnings per share is calculated based upon the weighted average
number of common shares outstanding during the period while diluted earnings per
share also gives effect to all potential dilutive common shares outstanding
during the period such as options, warrants, convertible securities, and
contingently issuable shares. All potential dilutive common shares have been
excluded from the calculation of diluted earnings per share as their inclusion
would be anti-dilutive.
F-8
<PAGE>
COMPREHENSIVE INCOME (LOSS)
Financial Accounting Standards Board's Statement No. 130,
"Comprehensive Income" ("SFAS No. 130") requires unrealized gains and losses
on the Company's available-for-sale securities to be included in accumulated
comprehensive income (loss). The Company has reported the total comprehensive
loss in the Consolidated Statements of Stockholders' Equity.
2. FINANCIAL STATEMENT DETAILS
PROPERTY, PLANT AND EQUIPMENT - NET
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
2000 1999
----------------------- ---------------------
<S> <C> <C>
Land $ 225,000 $ 225,000
Buildings 300,000 300,000
Building improvements 2,422,000 2,323,000
Furniture, fixtures, and equipment 19,686,000 20,614,000
Leasehold improvements 20,045,000 19,870,000
----------------------- ---------------------
42,678,000 43,332,000
Less accumulated depreciation and amortization (22,369,000) (18,711,000)
----------------------- ---------------------
$ 20,309,000 $ 24,621,000
======================= =====================
</TABLE>
ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 30,
2000 1999
----------------------- ---------------------
<S> <C> <C>
Payroll and related expenses $ 3,338,000 $ 1,704,000
Rent and related operating expenses 433,000 201,000
Clinical trial supplies expense -- 2,286,000
Other 330,000 89,000
----------------------- ---------------------
$ 4,101,000 $ 4,280,000
======================= =====================
</TABLE>
3. INVESTMENTS
The Company classifies its investment securities as
available-for-sale and records holding gains or losses in accumulated
comprehensive income (loss).
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
--------------------------------------------------- ---------------------------------------------------
Gross Gross
Unrealized Estimated Unrealized Estimated
Cost Gains (Losses) Fair Value Cost Gains (Losses) Fair Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
Securities $ -- $ -- $ -- $ -- $ -- $ --
Corporate securities 1,296,000 3,510,000 4,806,000 -- -- --
--------------------------------------------------- ---------------------------------------------------
$ 1,296,000 $ 3,510,000 $ 4,806,000 $ -- $ -- $ --
=================================================== ===================================================
</TABLE>
The gross realized gain on sales of available-for-sale securities
totaled $6,282,000 in 2000. The gross unrealized gain of $3,510,000 in 2000
is recorded as
F-9
<PAGE>
a component of comprehensive income. The unrealized gain had no cash effect
and therefore is not reflected in the Consolidated Statements of Cash Flows.
4. LONG-TERM DEBT
In June 1998, the Company restructured a loan and security agreement
with a bank to provide for up to $15 million at the bank's prime rate plus 0.5%.
In March 1999, the Company was in violation of a financial covenant under the
loan. In June 1999, the bank waived the violation, took additional collateral
and restructured the loan which resulted in increased principal payments. The
loan bears interest at rates ranging from 7.5% to 10% at June 30, 2000. As part
of the restructuring, the Company issued to the bank a warrant to purchase up to
180,000 shares of common stock at an exercise price of $2.88 per share The
Company has recorded deferred interest expense on the warrant, based upon a
Black-Scholes valuation, of $241,000, which is being amortized over the life of
the warrant. The unamortized deferred interest balance was $141,000 at June 30,
2000. Amounts borrowed are secured by a $5 million restricted certificate of
deposit, by certain fixed assets and patents, and are to be repaid over four
years. If certain financial covenants are not satisfied, the outstanding balance
may become due and payable. On June 30, 2000, the balance outstanding on this
loan was $9.2 million.
In May 1999, the Company privately placed $1.8 million of 6%
convertible subordinated notes due May 2002 and issued warrants to the note
holders to purchase up to 300,000 shares of common stock at $2.45 per share. In
February 2000, the Company caused the notes to be converted into 900,000 shares
of common stock of the Company. The conversion price of the notes was $2 per
share, which was below the trading market price of the stock on the day the
notes were issued. As a result of this beneficial conversion price, the Company
recognized an immediate charge to interest expense of $844,000 on these
convertible notes. The Company recorded deferred interest expense on the
warrants of $521,000, based upon a Black-Scholes valuation, and amortized the
deferred interest over the life of the notes. The unamortized deferred interest
balance was expensed in February 2000 when the notes were converted.
In February 2000, the Company sold $15 million in four-year 5%
subordinated convertible debentures to certain investors. The debentures are
convertible at any time at each investor's option into shares of Alliance common
stock at $9.65 per share, subject to certain antidilution provisions. The
conversion price of the debentures was below the trading market price on the day
the debentures were issued. As a result of this beneficial conversion price, the
Company has recorded an immediate charge to interest expense of $3.7 million on
these convertible debentures. The Company will have certain rights to cause the
debentures to convert into common stock. The investors will have the option at
any time to purchase, and the Company will have certain rights to require the
investors to purchase, an additional $15 million of four-year 5% subordinated
convertible debentures, convertible into Alliance common stock at $12.06 per
share. The Company issued to certain investors of the debentures a warrant to
purchase up to 77,720 shares of common stock at an exercise price of $9.65 per
share. The Company has recorded deferred interest expense on the warrant, based
upon a Black-Scholes valuation, of $503,000, which will be amortized over the
life of the warrant. The unamortized deferred interest balance was $433,000 at
June 30, 2000.
The Company's principal payments for the long-term debt for the years
ending June 30, 2001, 2002, 2003, 2004 and 2005 are $4.4 million, $2.8 million,
$1.7 million, $300,000 and $-0-, respectively. Due to the option of the Company
to satisfy the $15 million subordinated convertible debentures with the issuance
of common stock, the Company has excluded any principal payments on the
convertible notes from the five year schedule of principal payments.
5. STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
The Company has a 1983 Incentive Stock Option Plan (the "1983 Plan"), a
1983 Non-Qualified Stock Option Program (the "1983 Program"), and a 1991 Stock
Option Plan which provides for both incentive and non-qualified stock options
(the "1991 Plan"). These plans provide for the granting of options to purchase
shares of the Company's common stock (up to an aggregate of 500,000, 2,500,000,
and 8,300,000 shares under the 1983 Plan, 1983 Program, and 1991 Plan,
respectively) to directors, officers, employees, and consultants. The optionees,
date of grant, option price (which cannot be less than 100% and 80% of the fair
market value of the common stock on the date of grant for incentive stock
options and non-qualified stock options, respectively), vesting schedule, and
term of options, which cannot exceed ten years (five years
F-10
<PAGE>
under the 1983 Plan), are determined by the Compensation Committee of the Board
of Directors. The 1983 Plan and the 1983 Program have expired and no additional
options may be granted under such plans.
The following table summarizes stock option activity through June 30,
2000:
<TABLE>
<CAPTION>
Weighted
Shares Average Price
------------------ ---------------------
<S> <C> <C>
Balance at June 30, 1997 3,798,604 $ 10.66
Granted 1,814,750 $ 8.89
Exercised (135,660) $ 5.44
Terminated/Expired (391,771) $ 11.47
------------------
Balance at June 30, 1998 5,085,923 $ 10.11
Granted 2,617,008 $ 4.90
Exercised (129,918) $ 0.01
Terminated/Expired (2,373,791) $ 10.08
------------------
Balance at June 30, 1999 5,199,222 $ 7.75
Granted 2,672,300 $ 6.27
Exercised (501,894) $ 5.11
Terminated/Expired (675,788) $ 6.64
------------------
Balance at June 30, 2000 6,693,840 $ 7.47
==================
Available for future grant under the 1983 Plan and the 1983 Program -0-
==================
Available for future grant under the 1991 Plan 1,238,681
==================
</TABLE>
The following table summarizes information concerning outstanding and
exercisable stock options at June 30, 2000:
<TABLE>
<CAPTION>
Weighted
Weighted Average Weighted
Range of Exercise Number Average Remaining Number Average
Prices Outstanding Exercise Price Contractual Life Exercisable Exercise Price
------------------------ ---------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$2.375 - $2.75 840,750 $ 2.72 9.04 years 355,275 $ 2.73
$2.938 - $4.813 222,050 $ 4.034 8.58 years 32,450 $ 3.864
$4.875 1,138,000 $ 4.875 8.37 years 385,100 $ 4.875
$5.00 332,065 $ 5.00 8.15 years 228,132 $ 5.00
$5.031 - $7.688 696,850 $ 5.70 5.38 years 618,650 $ 5.68
$7.75 1,315,500 $ 7.75 9.46 years 16,000 $ 7.75
$7.8125 - $9.25 419,800 $ 8.72 5.87 years 279,375 $ 8.82
$9.375 684,900 $ 9.375 7.37 years 314,800 $ 9.375
$9.4375 - $13.188 704,700 $12.41 6.40 years 429,845 $12.37
$13.625 - $28.00 339,225 $19.54 3.07 years 314,943 $19.89
---------------- -----------------
6,693,840 $7.47 7.62 years 2,974,570 $8.32
================ =================
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123.
In accordance with its provisions, the Company applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
option plans, and accordingly, no compensation cost has been recognized for
stock options in 2000, 1999 or 1998. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
amortized to expense over their vesting period as prescribed by SFAS No. 123,
the Company's net loss applicable to common shares and net loss per share would
have been increased to the pro forma amounts indicated below for the years ended
June 30:
F-11
<PAGE>
<TABLE>
<CAPTION>
2000 1999 1998
------------------- ------------------ -------------------
<S> <C> <C> <C>
Net loss
As reported $ (46,467,000) $ (62,473,000) $ (33,003,000)
Pro forma (52,716,000) (67,386,000) (36,422,000)
Net loss per share
As reported $ (1.03) $ (1.89) $ (1.04)
Pro forma (1.17) (2.04) (1.15)
</TABLE>
The impact of outstanding non-vested stock options granted prior to
1996 has been excluded from the pro forma calculations; accordingly, the 2000,
1999 and 1998 pro forma adjustments are not indicative of future period pro
forma adjustments if the calculation reflected all applicable stock options. The
fair value of options at date of grant was estimated using the Black-Scholes
option-pricing model with the following assumptions for 2000, 1999 and 1998,
respectively: risk-free interest rate range of 5.63% to 6.63% (for all years);
dividend yield of 0% (for all years); volatility factor of 83%, 78% and 66%; and
a weighted-average expected term of 6 years, 7 years and 6 years. The estimated
weighted average fair value at grant date for the options granted during 2000,
1999 and 1998 was $4.64, $3.23 and $5.85 per option, respectively.
The following table summarizes common shares reserved for issuance at
June 30, 2000 on exercise or conversion of:
<TABLE>
<CAPTION>
Shares
----------------------
<S> <C>
Series F convertible preferred stock 909,091
Convertible subordinated debentures 1,554,404
Common stock options 7,932,521
Common stock warrants 1,996,743
----------------------
Total common shares reserved for issuance 12,392,759
======================
</TABLE>
WARRANTS
At June 30, 2000, the Company had warrants outstanding to purchase
1,996,743 shares of common stock at prices ranging from $2.45 to $20 per share.
The warrants expire on various dates from July 2000 through November 2004.
PREFERRED STOCK
In September 1997, in conjunction with a license agreement (the
"Schering License Agreement"), Schering Berlin Venture Corp. ("SBVC"), an
affiliate of Schering AG, Germany ("Schering"), purchased 500,000 shares of the
Company's convertible Series D Preferred Stock for $10 million. In February
2000, the Series D Preferred Stock was converted into 1,000,000 shares of common
stock of the Company.
In August 1998, the Company sold 100,000 shares of its convertible
Series E-1 Preferred Stock to certain investors for $6 million. The Company
recognized an imputed dividend of $483,000 to reflect a beneficial conversion
feature on these preferred shares. In January 1999, 47,837 shares of the Series
E-1 Preferred Stock were converted into 1,091,338 shares of Alliance common
stock at an average price of $2.63 per share. In May 1999, 31,456 shares of
Series E-1 Preferred Stock converted into 767,219 shares of Alliance common
stock. The Company also repurchased the remaining 20,707 shares of Series E-1
Preferred Stock for $2.2 million of cash. The Company recorded a preferred stock
dividend of $1.2 million, which represents the excess of the fair value of the
consideration transferred to the preferred stockholders over the carrying value
of the preferred stock. The investors obtained a right to receive a royalty on
future sales of one of the Company's products under development, provided that
the product is approved by the U.S. Food and Drug Administration by December
2003. The total royalty obligation is 0.3% of net sales of the product for a
period of three years. The Company has certain rights to repurchase the royalty
right.
In May 2000, the Company entered into a joint venture with Baxter
and sold 500,000 shares of its convertible Series F Preferred Stock for $20
million. If Alliance's common stock price averages $22
F-12
<PAGE>
per share over a 20-day period within the next four years, the conversion price
for the Series F Preferred Stock will be $22 per share. If the stock does not
reach that price, the conversion price will be based on the market value of
Alliance's common stock at the time of conversion. The Series F Preferred Stock
has no annual dividend and is not entitled to any voting rights except as
otherwise required by law.
6. LICENSE AGREEMENTS
From February 1996 through June 1997, Hoechst Marion Roussel
("HMRI") was responsible for most of the costs of development and marketing
of LIQUIVENT. In June 1997, the Company sold $2.5 million in clinical trial
supplies to HMRI and recorded it as deferred revenue. In December 1997, the
license agreement with HMRI was terminated. Therefore, since July 1, 1997
Alliance has been responsible for all LIQUIVENT development expenses
worldwide. HMRI has no continuing rights to the development or marketing of
LIQUIVENT. In September 1999, HMRI dismissed an arbitration proceeding filed
against Alliance in September 1998, and Alliance agreed to repurchase the
clinical trial supplies from HMRI for up to $3 million over time and under
certain circumstances. The Company converted the balance of deferred revenue
to accrued expenses at June 30, 1999. During fiscal 2000, the Company
repurchased all of the clinical trial supplies and the associated liability
was reduced to $-0-.
In September 1997, the Company entered into the Schering License
Agreement, which provides Schering with worldwide exclusive marketing and
manufacturing rights to Alliance's drug compounds, drug compositions, and
medical devices and systems related to perfluorocarbon ultrasound imaging
products, including IMAVIST-TM- (formerly named IMAGENT-Registered
Trademark-). In conjunction with the Schering License Agreement, SBVC
purchased 500,000 shares of the Company's convertible Series D Preferred
Stock for $10 million. In February 2000, the Series D Preferred Stock was
converted into 1,000,000 shares of common stock of the Company. IMAVIST is
being developed jointly by Alliance and Schering. Under the Schering License
Agreement, Schering paid to Alliance in 1998 an initial license fee of $4
million, and agreed to pay further milestone payments and royalties on
product sales. Schering is also providing funding to Alliance for some of its
development expenses related to IMAVIST.
In May 2000, Alliance and Baxter entered into a joint venture for
the manufacture, marketing, sales and distribution of OXYGENT in the United
States, Canada and countries in the European Union (the "Baxter Territory").
The companies formed PFC Therapeutics to oversee the further development,
manufacture, marketing, sales and distribution of OXYGENT; and each party
invested $5 million in PFC Therapeutics. In connection with the transaction,
PFC Therapeutics obtained an exclusive license in the Baxter Territory, to
manufacture and market all of the Company's injectable perfluorochemical
emulsions capable of transporting oxygen in therapeutic effective amounts in
the bloodstream, including OXYGENT. PFC Therapeutics paid Alliance a prepaid
royalty of $10 million, which has been recorded as deferred revenue. Alliance
and Baxter will also share in the distribution of PFC Therapeutics' future
cash flows. Under the arrangement, Alliance will continue to fund the current
development plan for OXYGENT'S initial approval in the Baxter Territory. PFC
Therapeutics has a right of first offer to license OXYGENT in one or more
countries outside the Baxter Territory. Pursuant to a manufacturing and
supplier agreement between Alliance and PFC Therapeutics, Alliance will
initially manufacture OXYGENT for distribution in the Baxter Territory. Under
separate agreements between Baxter and PFC Therapeutics, Baxter will have the
exclusive right to promote, market, distribute and sell OXYGENT in the Baxter
Territory, and Baxter has the right to take over the manufacturing
responsibility for OXYGENT. In connection with this arrangement, Baxter has
purchased 500,000 shares of the Company's convertible Series F Preferred
Stock for $20 million. In order for Baxter to maintain its rights to
commercialize the product, Baxter is required to purchase an additional $30
million of convertible redeemable preferred stock from Alliance through
September 2001.
7. SALE OF TECHNOLOGY
In November 1999, the Company completed the sale of certain aspects
of its PULMOSPHERES-Registered Trademark- technology to Inhale Therapeutic
Systems, Inc. ("Inhale") for $15 million in cash and $5 million in common
stock of Inhale, plus the right to receive additional future milestone and
royalty payments. In consideration for retaining certain rights to use the
technology, Alliance issued $5 million in Alliance common stock to Inhale.
The Company recorded net revenue of $14.1 million associated with this
transaction.
F-13
<PAGE>
8. INCOME TAXES
Significant components of the Company's deferred tax assets as of June
30, 2000 and 1999, respectively, are shown below. A valuation allowance of
$144,955,000, of which $23,554,000 is related to 2000, has been recognized to
offset the deferred tax assets as realization of such assets is uncertain.
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
June 30,
2000 1999
--------------------- --------------------
<S> <C> <C>
Net operating loss carryforwards $ 107,107,000 $ 93,497,000
Research and development credits 17,563,000 12,423,000
Capitalized research expense 14,883,000 12,047,000
Other - net 5,402,000 3,434,000
--------------------- -----------------
Total deferred tax assets 144,955,000 121,401,000
Valuation allowance for deferred tax assets (144,955,000) (121,401,000)
--------------------- --------------------
Net deferred tax assets $ -- $ --
===================== ====================
</TABLE>
Approximately $3,580,000 of the valuation allowance for deferred tax
assets relates to stock option deductions which, when recognized, will be
allocated to contributed capital.
At June 30, 2000, the Company had federal and various state net
operating loss carryforwards of approximately $299,820,000 and $37,735,000,
respectively. The difference between the federal and state tax loss
carryforwards is primarily attributable to the capitalization of research and
development expenses for California tax purposes and the fifty percent
limitation on California loss carryforwards. Approximately $1,457,000 of
California tax loss carryforwards expired in fiscal 2000 and will continue to
expire (approximately $1,090,000 in fiscal 2001) unless previously utilized.
Approximately $1,273,000 of federal tax loss carryforwards expired in fiscal
2000 and will continue to expire (approximately $1,851,000 in fiscal 2001)
unless previously utilized. The Company also has federal and state research and
development tax credit carryforwards of $14,355,000 and $4,937,000,
respectively, which will begin expiring in fiscal 2001 unless previously
utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual
use of the Company's net operating loss and credit carryforwards may be limited
because of cumulative changes in ownership of more than 50% which have occurred;
however, the Company does not believe such limitation will have a material
impact upon the utilization of these carryforwards.
9. COMMITMENTS
The Company leases certain office and research facilities in San Diego
and certain equipment under operating leases. Provisions of the facilities
leases provide for abatement of rent during certain periods and escalating rent
payments during the lease terms based on changes in the Consumer Price Index.
Rent expense is recognized on a straight-line basis over the term of the leases.
F-14
<PAGE>
Minimum annual commitments related to operating lease payments at June
30, 2000 are as follows:
<TABLE>
<CAPTION>
Years ending June 30,
---------------------
<S> <C>
2001 $ 3,495,000
2002 3,605,000
2003 1,830,000
2004 1,216,000
2005 805,000
Thereafter 2,284,000
-------------------
Total $ 13,235,000
===================
</TABLE>
Rent expense for fiscal 2000, 1999, and 1998 was $4.2 million, $4.1
million and $3.4 million, respectively.
10. SUBSEQUENT EVENT (UNAUDITED)
In August 2000, the Company sold $10 million in principal amount of
four-year 5% subordinated convertible debentures to certain investors. The
debentures are convertible at any time at each investor's option into shares of
Alliance common stock at $13.32 per share, subject to certain antidilution
provisions. The conversion price of the debentures was below the trading market
price on the day the debentures were issued. As a result of this beneficial
conversion price, the Company will record an immediate charge to interest
expense of $792,000 on these convertible debentures in the first quarter of
fiscal year 2001. The Company will have certain rights to cause the debentures
to convert into common stock. The investors will have the option at any time to
purchase, and the Company will have certain rights to require the investors to
purchase, an additional $10 million of four-year 5% subordinated convertible
debentures, convertible into Alliance common stock at $16 per share.
F-15
<PAGE>
ALLIANCE PHARMACEUTICAL CORP.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS --- NOVEMBER 8, 2000
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 November 8, 2000, at the offices of the
Corporation at 9333 Genesee Avenue, Suite 300, 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 APPROVAL OF AN INCREASE IN THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE CORPORATION BY 50,000,000
SHARES, FOR APPROVAL OF THE 2000 STOCK OPTION PLAN, AND FOR RATIFICATION OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30,
2001. 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 an increase
in the number of authorized shares of common stock of the Corporation by
50,000,000 shares, FOR adoption of the 2000 Stock Option Plan, and FOR
ratification of Ernst & Young LLP as independent auditors for the fiscal year
ending June 30, 2001. 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>
<S> <C> <C> <C>
1. Election of Directors FOR all nominees listed below (except as marked to the contrary) WITHHOLD AUTHORITY
to vote for all nominees
listed below
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
<TABLE>
<S> <C> <C>
Dr. Pedro Cuatrecasas Dr. Fred M. Hershenson 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
</TABLE>
<TABLE>
<S> <C> <C> <C>
2. Increase of the number of authorized shares of Common Stock of the Corporation by 50,000,000 shares
FOR AGAINST ABSTAIN
3. Adoption of the 2000 Stock Option Plan
FOR AGAINST ABSTAIN
4. Ratification of Ernst & Young LLP as independent auditors
FOR AGAINST ABSTAIN
</TABLE>
(To be completed and signed on reverse side)
<PAGE>
Dated:
-------------------------------------------,
2000
--------------------------------------------
--------------------------------------------
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.
