<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
NEOTHERAPEUTICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
April 26, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of NeoTherapeutics, Inc. (the "Company") to be held on Monday, June
14, 1999, at the Company's corporate headquarters located at 157 Technology
Drive, Irvine, California, 92618, beginning at 3:30 p.m., local time.
The business to be conducted at the Annual Meeting includes the
following: (1) election of four Class II directors; (2) approval of the issuance
of Common Stock pursuant to conversion rights under a preferred stock financing
transaction; (3) approval of the issuance of common stock pursuant to a private
equity line of credit financing transaction; (4) approval of an increase in the
total number of shares issuable under the 1997 Stock Incentive Plan by 750,000;
and (5) ratification of the selection of independent public accountants, as well
as consideration of any other matters which may properly come before the Annual
Meeting and any adjournment thereof. All of these matters are described in
detail in the accompanying Notice of Annual Meeting and Proxy Statement. In
addition, we will be pleased to report on the affairs of the Company and a
discussion period will be provided for questions and comments of general
interest to stockholders.
It is important that your shares be represented; therefore, even if you
presently plan to attend the Annual Meeting, please complete, sign and date and
promptly return the enclosed proxy card in the envelope provided. If you do
attend the Annual Meeting and wish to vote in person, you may withdraw your
proxy at that time.
I look forward to seeing you at the Annual Meeting.
Very truly yours,
Alvin J. Glasky, Ph.D.
President, Chief Executive Officer
and Chairman of the Board
157 Technology Drive, Irvine, California 92618
Tel (949) 788-6700 Fax (949) 788-6706
<PAGE> 3
NEOTHERAPEUTICS, INC.
157 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
-----------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 1999
----------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of NeoTherapeutics, Inc. (the "Company") will be held at the
principal business office of the Company, 157 Technology Drive, Irvine,
California 92618, on Monday, June 14, 1999 at 3:30 p.m., local time, for the
following purposes:
(1) To elect four Class II directors to serve for a two-year term
expiring at the Annual Meeting of Stockholders to be held in 2001
or until their successors have been duly elected and qualified;
(2) To approve the issuance of common stock pursuant to conversion
rights under a preferred stock financing transaction;
(3) To approve the issuance of common stock pursuant to a private
equity line of credit agreement;
(4) To approve the increase in the number of shares in the 1997 Stock
Incentive Plan by 750,000;
(5) To ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for the current fiscal year; and
(6) To transact any other business as may properly come before the
Annual Meeting and any adjournment thereof.
Stockholders of record at the close of business on April 16, 1999, are
entitled to notice of, and to vote at, the Annual Meeting and any adjournment
thereof. All stockholders are cordially invited to attend the Annual Meeting in
person. A list of such stockholders will be available for examination by any
stockholder at the Annual Meeting and, for any purpose germane to the Annual
Meeting, at the principal business office of the Company, 157 Technology Drive,
Irvine, California, for a period of ten days prior to the Annual Meeting.
By Order of the Board of Directors
Samuel Gulko
SECRETARY
Irvine, California
April 26, 1999
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD, AND RETURN IT IN THE
PREADDRESSED ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED
STATES.
- --------------------------------------------------------------------------------
<PAGE> 4
NEOTHERAPEUTICS
157 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
----------------------
PROXY STATEMENT
----------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 1999
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of NeoTherapeutics, Inc. (the
"Company") for use at the Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held on Tuesday, June 14, 1999, at 3:30 p.m., local
time. The Annual Meeting will be held at 157 Technology Drive, Irvine,
California 92618, the principal business office of the Company. This Proxy
Statement and the accompanying proxy are first being mailed on or about April
26, 1999.
REVOCABILITY OF PROXIES
An executed proxy may be revoked at any time before its exercise by
delivering to the Secretary of the Company a written notice of revocation or a
duly executed proxy bearing a later date. Prior to the date of the Annual
Meeting, any such notice or subsequent proxy must be delivered to the Secretary
of the Company at 157 Technology Drive, Irvine, California 92618, the principal
executive office of the Company. On the date of the Annual Meeting, such notice
or subsequent proxy should be delivered in person at the Annual Meeting prior to
the time of the vote. Accordingly, the execution of the enclosed proxy will not
affect a stockholder's right to vote in person should such stockholder find it
convenient to attend the Annual Meeting and desire to vote in person, so long as
the stockholder has revoked his or her proxy prior to its exercise in accordance
with these instructions.
VOTING AND SOLICITATION
On April 16, 1999, the record date with respect to this solicitation,
____________ shares of the Company's common stock ("Common Stock") were
outstanding. No other securities are entitled to vote at the Annual Meeting.
Only stockholders of record on such date are entitled to notice of and to vote
at the Annual Meeting and at any adjournment thereof. Each stockholder of record
is entitled to one vote for each share held as of the record date on all matters
to come before the Annual Meeting and at any adjournment thereof.
QUORUM. The holders of a majority of the outstanding shares of the
Company's Common Stock, present in person or by proxy and entitled to vote, will
constitute a quorum at the Annual Meeting. Proxies marked "withheld" as to any
director nominee or "abstain" as to a particular proposal and broker non-votes
are counted by the Company for purposes of determining the presence or absence
of a quorum at the Annual Meeting for the transaction of business.
VOTE REQUIRED. The director nominees receiving the highest number of
affirmative votes of the shares present or represented by proxy and entitled to
vote, up to the number of directors to be elected at the Annual Meeting (four
Class II directors), shall be elected as directors. Accordingly, abstentions and
broker non-votes will have no effect in determining which directors receive the
highest number of votes. Ratification of the selection of Arthur Andersen LLP as
the Company's independent public accountants,
1
<PAGE> 5
and approval of any other matter that properly comes before the Annual Meeting
must be accomplished by the affirmative votes of a majority of the shares
present or represented and entitled to be voted at the Annual Meeting. The vote
required for approval and the effect of proxies marked "abstain" and broker
non-votes on Proposals 2, 3 and 4 is discussed under each respective Proposal.
The shares represented by all valid proxies received will be voted in
accordance with the instructions specified therein. Unless otherwise directed in
the proxy, the persons named therein will vote FOR the election of each of the
Class II director nominees and FOR each of the other proposals. As to any other
business that may properly come before the Annual Meeting, they will vote in
accordance with their best judgment. The Company presently does not know of any
other such business.
SOLICITATION. Proxies for use at the Annual Meeting are being solicited
by the Board of Directors of the Company. Proxies will be solicited principally
by mail. If desirable, to ensure a quorum at the Annual Meeting, officers,
directors, agents and employees of the Company may contact stockholders, banks,
brokerage houses and others, by telephone, facsimile or in person to request
that proxies be furnished. All expenses incurred in connection with this
solicitation will be borne by the Company. These costs include reimbursements to
banks, brokerage houses and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding proxy materials to beneficial owners of the
Company's Common Stock. However, officers, directors and employees will not
receive additional compensation for these services. The Company has engaged
Georgeson & Company Inc. ("Georgeson") to solicit proxies and distribute
materials to banks, brokerage houses and other custodians and nominees. The
Company will pay Georgeson a fee of approximately $4,500.00 plus expenses for
these services.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of nine
directors, divided into two classes. Each Class is elected in alternate years
and serves a term of two years. The Class I directors, whose term expires at the
Annual Meeting of Stockholders in 2000, are Samuel Gulko, Frank M. Meeks, Eric
L. Nelson, Ph.D., Stephen Runnels and Paul H. Silverman, Ph.D., D.Sc. The Class
II director nominees, whose term expires at the Annual Meeting of Stockholders
in 2001, are Alvin J. Glasky, Ph.D., Mark J. Glasky, Carol O'Cleireacain, Ph.D.
and Joseph Rubinfeld, Ph.D. Each director elected will serve the term for which
he or she was nominated and until the election and qualification of his or her
successor or until his or her earlier resignation or removal.
Unless otherwise specified, the enclosed proxy will be voted in favor of
the persons named below. If any nominee should become unavailable to serve as a
Director, the persons named in the enclosed proxy will be authorized to vote for
such other person or persons as the Board of Directors may designate. All
nominees have consented to be named and have indicated their intent to serve if
elected. The Board of Directors has no reason to believe that any of the
nominees will be unable to serve.
The following table provides information regarding the nominees and the
other continuing members of the Board of Directors, their ages, the year in
which each first became a director of the Company, their principal occupations
or employment during the past five years and any family relationship with any
other director or executive officer of the Company:
2
<PAGE> 6
CLASS II NOMINEES - TERM EXPIRING IN 2001
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST
NAME AND AGE FIVE YEARS AND OTHER DIRECTORSHIPS
- ------------ ----------------------------------
<S> <C>
Alvin J. Glasky, Ph.D. (65) ALVIN J. GLASKY, PH.D., has been Chief
Executive Officer, President and a
director of Advanced ImmunoTherapeutics,
Inc. ("AIT") since its inception in June
1987, and has served as the Chairman of
the Board, Chief Executive Officer,
President and a director of the Company
since July 1989, when AIT became a wholly
owned subsidiary of the Company. From
March 1986 to January 1987, Dr. Glasky was
Executive Director of the American Social
Health Association, a non-profit
organization. From 1968 until March 1986,
Dr. Glasky was the President and Chairman
of the Board of Newport Pharmaceuticals
International, Inc., a pharmaceutical
company that developed, manufactured and
marketed prescription medicines. From 1966
to 1968, Dr. Glasky served as Director of
Research for ICN Pharmaceuticals, Inc. and
as Director of the ICN-Nucleic Acid
Research Institute in Irvine, California.
During that period he was also an
assistant professor in the Pharmacology
Department of the Chicago Medical School.
Dr. Glasky currently is a Regent's
Professor at the University of California,
Irvine. Dr. Glasky received a B.S. degree
in Pharmacy from the University of
Illinois College of Pharmacy in 1954 and a
Ph.D. degree in Biochemistry from the
University of Illinois Graduate School in
1958. Dr. Glasky was also a Post-Doctoral
Fellow, National Science Foundation, in
Sweden.
Mark J. Glasky (36) MARK J. GLASKY has been a director of the
Company since August 1994. Since 1982, Mr.
Glasky has been employed by Bank of
America NT&SA in various corporate lending
positions and currently serves as its
Credit Products Executive for Southern
California Commercial Banking. Mr. Glasky
obtained a B.S. degree in International
Finance from the University of Texas at
Austin in 1987. Mark J. Glasky is the son
of Dr. Alvin J. Glasky.
Carol O'Cleireacain, Ph.D. (52) CAROL O'CLEIREACAIN, PH.D., has been a
director of the Company since September
1996. Dr. O'Cleireacain has served as an
independent economic and management
consultant in New York City since 1994.
Since 1998, Dr. O'Cleireacain has served
as Senior Fellow (non-resident) at the
Brookings Institution in Washington D.C.,
where previously, from March 1996 until
June 1997, as a Visiting Fellow, Economic
Studies, she authored THE ORPHANED
CAPITAL: ADOPTING THE RIGHT REVENUES FOR
THE DISTRICT OF COLUMBIA. Since 1998, Dr.
O'Cleireacain has also served as an
adjunct Professor of Urban Studies at
Barnard College, Columbia University.
During 1998, Dr. O'Cleireacain served as a
member of the President's Commission to
Study Capital Budgeting, and during 1997,
Dr. O'Cleireacain served as a member of
the National Civil Aviation Review
Commission. Since May 1996, Dr.
O'Cleireacain has served as a director and
member of the Executive Committee of
Trilliumn Asset Management (formerly known
as Franklin Research and Development
Corp.), an employee-owned investment
company in Boston. From April 1994 through
April 1996, Dr. O'Cleireacain served as
the first
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST
NAME AND AGE FIVE YEARS AND OTHER DIRECTORSHIPS
- ------------ ----------------------------------
<S> <C>
nominee of the United Steelworkers of
America and the first woman director of
ACME Metals Inc. Dr. O'Cleireacain served
as the Director of the Mayor's Office of
Management and Budget of the City of New
York from August 1993 until December 1993.
From February 1990 until August 1993, Dr.
O'Cleireacain was the Commissioner of the
New York City Department of Finance. Dr.
O'Cleireacain received a B.A., with
distinction, in Economics from the
University of Michigan in 1968, an M.A. in
Economics from the University of Michigan
in 1970 and a Ph.D. in Economics from the
London School of Economics in 1977.
Joseph Rubinfeld, Ph.D. (66) JOSEPH RUBINFELD, PH.D., has been a
director of the Company since June 1998.
Dr. Rubinfeld is the co-founder of
publicly held SuperGen, Inc., a
pharmaceutical company focused on drugs
for life-threatening diseases,
particularly cancer, and has served as the
Chief Executive Officer, President and a
director since its inception in March 1991
and was Chief Scientific Officer from
inception until September 1997. Since May
1996, Dr. Rubinfeld has served as a
director of Antivirals, Inc., a
biopharmaceutical company. Dr. Rubinfeld
was one of the four initial founders of
Amgen, Inc., a biotechnology company, in
1980 and served as Vice President and
Chief of Operations until 1983. From 1987
to 1990, Dr. Rubinfeld was a Senior
Director at Cetus Corporation, a former
biotechnology company. From 1968 to 1980,
Dr. Rubinfeld was employed at
Bristol-Myers Company International
Division ("Bristol-Myers") in a variety of
positions, most recently as Vice President
and Director of Research and Development.
While at Bristol-Myers, Dr. Rubinfeld was
instrumental in licensing the original
anticancer line of products for
Bristol-Myers, including Mitomycin and
Blemycin. Prior to that time, Dr.
Rubinfeld was a research scientist with
several pharmaceutical and consumer
product companies including
Schering-Plough Corporate and
Colgate-Palmolive Co.
</TABLE>
CONTINUING CLASS I DIRECTORS - TERM EXPIRING IN 2000
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST
NAME AND AGE FIVE YEARS AND OTHER DIRECTORSHIPS
- ------------ ----------------------------------
<S> <C>
Samuel Gulko (67) SAMUEL GULKO has served as the Chief
Financial Officer of the Company since
September 1996 and as Secretary, Treasurer
and a director since June 1998. From 1968
until March 1987, Mr. Gulko served as a
partner in the audit practice of Ernst &
Young, LLP, Certified Public Accountants.
From April 1987 to the present, Mr. Gulko
has been self-employed as a Certified
Public Accountant and business consultant,
as well as the part-time Chief Financial
Officer of several companies. Mr. Gulko
obtained his B.S. degree in accounting
from the University of Southern California
in 1958.
Frank M. Meeks (54) FRANK M. MEEKS has been a director of the
Company since July 1989. Since September
1992, Mr. Meeks has been pursuing personal
investments in real estate, property
management and oil and gas. Mr. Meeks was
employed by Environmental Developers,
Inc., a real estate development and
construction company, from June 1979 until
March 1993, first as Vice President and
finally as Financial Vice President. Mr.
Meeks obtained a B.S. degree in Business
Administration from Wittenberg University
in 1966, and an M.B.A. degree from Emory
University in 1967. Mr. Meeks is a
non-practicing certified public accountant
and a licensed real estate broker.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST
NAME AND AGE FIVE YEARS AND OTHER DIRECTORSHIPS
- ------------ ----------------------------------
<S> <C>
Eric L. Nelson, Ph.D. (74) ERIC L. NELSON, PH.D., has been a director
of the Company since June 1998 and a
member of the Company's Scientific
Advisory Board since 1987. Dr. Nelson has
been a pharmaceutical research consultant
since 1986. Dr. Nelson was a founder, and
served as Chairman from 1972 until 1986,
of Nelson Research & Development
Corporation, a publicly held corporation
engaged in research and development of
drug receptor technology applied to the
development of pharmaceutical products and
novel drug delivery systems. Prior to
1972, Dr. Nelson spent eleven years at
Allergan Pharmaceuticals, Inc., a
developer of eye care products, where as
Vice President of Research he was
responsible for establishing Allergan's
entire research organization. Dr. Nelson
received his doctorate degree in
Microbiology from UCLA in 1951 and has
authored numerous publications. He is the
inventor on various patents in the areas
of microbiology, immunology, molecular
biology and pharmacology.
Stephen Runnels (50) STEPHEN RUNNELS joined the Company as
Executive Vice President in April 1997,
and has been a director of the Company
since June 1998. From January 1992 to
April 1997, Mr. Runnels held the position
of Vice President, Marketing and Business
Development for Sigma-Aldrich, Inc., a
Fortune 500 manufacturer of biochemicals,
pharmaceuticals, and biotechnology
products. From November 1989 until January
1992, Mr. Runnels held the position of
Vice President - Sales and Marketing for
Irvine Scientific, a provider of tissue
culture supplies and reagents for
biomedical research. From January 1978
until November 1989, Mr. Runnels held the
position of Vice President, International
Operations for Gamma Biologicals, a
manufacturer of immunological reagents.
Mr. Runnels is certified by the American
Society of Clinical Pathologists as a
specialist in Immunohematology. From 1975
to 1978, Mr. Runnels was an instructor of
Clinical Immunology at Arizona State
University.
Paul H. Silverman, Ph.D., PAUL H. SILVERMAN, PH.D., D.SC., has been
D.Sc. (74) a director of the Company since September
1996. Dr. Silverman has served as a
Director for the Western Center of the
American Academy of Arts and Sciences
located on the University of California,
Irvine campus since March 1997. Since
March 1993, Dr. Silverman has also been an
Adjunct Professor in the Department of
Medicine at the University of California,
Irvine. From January 1994 until July 1996,
Dr. Silverman served as an Associate
Chancellor for the Center for Health
Sciences at the University of California,
Irvine. From August 1992 until January
1994, Dr. Silverman served as the Director
of Corporate and Government Affairs at the
Beckman Laser Institute and Medical Clinic
in Irvine, California. From November 1990
until December 1993, Dr. Silverman served
as Director of Scientific Affairs at
Beckman Instruments, Inc. Prior to 1990,
Dr. Silverman served as the Director of
the Systemwide Biotechnology Research and
Education Program for the University of
California; the Director of the Donner
Laboratory and an Associate Director of
the Lawrence Berkeley Laboratory at the
University of California, Berkeley; as the
President of the University of Maine at
Orono; as the President of The Research
Foundation of the State University of New
York, and as the head of the Department of
Immunoparasitology at Glaxo, Ltd.
</TABLE>
5
<PAGE> 9
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended December 31, 1998, the Board of the
Directors of the Company met eight times. The Board of Directors has two
committees: the Audit Committee and the Compensation Committee. No director
attended fewer than 75% of the aggregate of all meetings of the Board of
Directors and the committees of the Board, if any, on which such director served
and which were held during the period of time that he or she served on the Board
or such committee. The following sets forth information concerning each
committee:
The AUDIT COMMITTEE was comprised of Dr. Carol O'Cleireacain (who serves
as Chairman), Messrs. Mark Glasky (who served on the Committee until March 19,
1999) and Frank M. Meeks. The Audit Committee recommends engagement of the
Company's independent public accountants and is primarily responsible for
approving the services performed by the Company's independent accountants and
for reviewing and evaluating the Company's accounting principles and its system
of internal controls. The Audit Committee held two meetings during 1998.
The COMPENSATION COMMITTEE was comprised of Mr. Frank M. Meeks (who
served on the Committee and acted as Chairman until June 16, 1998), Dr. Eric L.
Nelson (who has served as Chairman since June 16, 1998), Dr. Carol
O'Cleireacain, Dr. Paul H. Silverman and Joseph Rubinfeld, Ph.D. (who has served
on the Committee since March 19, 1999). The Compensation Committee reviews and
recommends the salaries and bonuses of officers and certain key employees of the
Company, establishes compensation and incentive plans, authorizes and approves
the granting of stock options and restricted stock in accordance with the
Company's stock option and incentive plans, and determines other fringe
benefits. The Compensation Committee held two meetings during 1998.
COMPENSATION OF DIRECTORS
Each of the Company's non-employee directors receives $1,000 for each
Board of Directors meeting and $500 for each committee meeting attended (with
the Chairperson of the committee receiving $1,000). The directors are also
reimbursed for certain expenses incurred in connection with attendance at Board
meetings. In February 1998, the Company granted to each non-employee director an
option to purchase 10,000 shares of Common Stock at $8.375 per share. In August
1998, the Company granted to each non-employee director an option to purchase
10,000 shares of Common Stock at $5.625 per share.
6
<PAGE> 10
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of April 17, 1999,
regarding the beneficial ownership of the Company's Common Stock of: (i) each
person known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each director and nominee for director of the
Company; (iii) the executive officers named in the Summary Compensation Table
(see "Executive Compensation"); and (iv) all directors and executive officers of
the Company as a group. Except as otherwise specified, the named beneficial
owner has the sole voting and investment power over the shares listed.
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME OF BENEFICIAL OWNER (1) OWNED (1) OUTSTANDING
- --------------------------- ------------ -----------
<S> <C> <C>
Alvin J. Glasky, Ph.D. (2)....................... 1,443,872 22.6%
157 Technology Drive
Irvine, CA 92618
Mark J. Glasky (3)............................... 45,979 *
Michelle S. Glasky, Ph.D. (4)(5)................. 35,980 *
Samuel Gulko (6)................................. 37,900 *
Frank M. Meeks (7)............................... 57,960 *
Eric L. Nelson, Ph.D. (8)........................ 54,000 *
Carol O'Cleireacain, Ph.D. (9)................... 37,500 *
Joseph Rubinfeld, Ph.D (10)...................... 7,500 *
Stephen Runnels (11)............................. 49,500 *
Paul H. Silverman, Ph.D., D.Sc. (9).............. 37,500 *
All Executive Officers and Directors
as a group (ten persons) (12).................. 1,807,691 27.2%
</TABLE>
- ------------
* less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options and warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of April 17, 1999, are deemed
beneficially owned and outstanding for computing the percentage of the
person holding such securities, but are not considered outstanding for
computing the percentage of any other person.
(2) Includes 88,173 shares subject to outstanding warrants, 4,000 shares
held for the benefit of Dr. Glasky by the NeoTherapeutics, Inc. 401(k)
Plan and 95,000 shares subject to options held by Dr. Glasky which are
currently exercisable or exercisable within 60 days of April 17, 1999.
Also includes 47,243 shares owned by Dr. Glasky's wife, Rosalie H.
Glasky and 16,500 shares subject to options held by Rosalie H. Glasky.
Does not include 45,979 shares beneficially owned by Mark J. Glasky and
35,980 shares beneficially owned by Michelle S. Glasky, Ph.D., Dr.
Glasky's adult children, for which Dr. Glasky disclaims beneficial
ownership.
7
<PAGE> 11
(3) Includes 27,500 shares subject to options held by Mr. Glasky which are
currently exercisable or exercisable within 60 days of April 17, 1999,
and 1,000 shares subject to currently exercisable warrants.
(4) Includes 28,500 shares subject to options held by Dr. Michelle S. Glasky
which are currently exercisable or exercisable within 60 days of April
17, 1999, and 500 shares subject to currently exercisable warrants.
(5) Michelle S. Glasky, Ph.D. is not one of the Named Executive Officers but
serves as the Company's Vice President, Scientific Affairs and is the
adult daughter of Dr. Alvin J. Glasky.
(6) Includes 24,500 shares subject to options held by Mr. Gulko which are
currently exercisable or exercisable within 60 days of April 17, 1999,
1,050 shares subject to currently exercisable warrants and 1,300 shares
owned by The Samuel Gulko CPA Keogh Plan, of which Mr. Gulko is trustee.
(7) Includes 27,500 shares subject to options held by Mr. Meeks which are
currently exercisable or exercisable within 60 days of April 17, 1999.
Does not include 460 shares beneficially owned by Mr. Meeks' wife, for
which Mr. Meeks disclaims beneficial ownership.
(8) Includes 7,500 shares subject to options held by Dr. Nelson which are
currently exercisable or exercisable within 60 days of April 17, 1999
and 36,500 shares held in the Eric L. and Lila D. Nelson Family Trust.
Does not include 5,000 shares beneficially owned by Dr. Nelson's wife,
for which Dr. Nelson disclaims beneficial ownership.
(9) Includes 27,500 shares subject to options held by each of Drs.
O'Cleireacain and Silverman which are currently exercisable or
exercisable within 60 days of April 17, 1999.
(10) Includes 7,500 shares subject to options held by Dr. Rubinfeld which are
currently exercisable or exercisable within 60 days of April 17, 1999.
(11) Includes 37,500 shares subject to options held by Mr. Runnels which are
currently exercisable or exercisable within 60 days of April 17, 1999.
(12) Includes 90,723 shares issuable upon the exercise of outstanding
warrants, and 327,000 shares subject to options which are currently
exercisable or exercisable within 60 days of April 17, 1999.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation of the Company's Chief Executive Officer and the other most highly
compensated executive officers of the Company whose total salary and bonuses for
services rendered to the Company in all capacities during the fiscal year ended
December 31, 1998 exceeded $100,000 (the "Named Executive Officers").
8
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
----------
ANNUAL COMPENSATION SECURITIES
-------------------------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS
- --------------------------- ---- -------- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Alvin J. Glasky, Ph.D. 1998 $199,998 $ -- $ -- 65,000
Chairman, Chief Executive 1997 199,992(1) -- -- --
Officer and President 1996 165,398(2) -- -- 75,000
Stephen Runnels(3) 1998 165,940 -- -- 25,000
Executive Vice President 1997 108,513 -- $25,107(4) 62,000
Samuel Gulko 1998 109,250 -- -- 25,000
Chief Financial Officer, 1997 78,000 -- -- 6,000
Secretary and Treasurer 1996 30,000(5) -- -- 14,000
</TABLE>
- ----------------
(1) Excludes prior years accrued salaries of $265,328 and auto allowances
and expense account reimbursements previously accrued aggregating
$84,516, all of which were paid in 1997.
(2) Includes an auto allowance of $400 per month. Of the total amounts,
$72,998 and $92,400 has been accrued for 1996.
(3) Commenced employment in April 1997.
(4) Represents a one-time relocation allowance.
(5) Employment commenced July 1996 on a part-time basis.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options
granted during the fiscal year ended December 31, 1998, to the Named Executive
Officers:
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual
Percentage of Rates of Stock Price
Total Options Appreciation for
Options Granted to Exercise Option Term
Granted(1) Employees in Price Expiration --------------------
Name (No. of Shares) Fiscal Year ($/share) Date 5% 10%
---- --------------- ------------ --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Alvin J. Glasky 25,000 8% $7.25 Feb. 11, 2008 $113,987 $288,866
40,000 13% $7.625 Dec. 17, 2008 191,813 486,091
Stephen Runnels 10,000 3% $7.25 Feb. 11, 2008 45,595 115,546
15,000 5% $7.625 Dec. 17, 2008 71,930 182,284
Samuel Gulko 10,000 3% $7.25 Feb. 11, 2008 45,595 115,546
15,000 5% $7.625 Dec. 17, 2008 71,930 182,284
</TABLE>
- -----------------
(1) The above options become exercisable in 25% increments, commencing three
months from the date of grant and each three months thereafter.
(2) The potential realizable value is calculated from the exercise price per
share, assuming the market price of the Company's common stock appreciates
in value at the stated percentage rate from the date of grant to the
expiration date. Actual gains, if any, are dependent on the future market
price of the common stock.
9
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning stock options
exercised during the fiscal year ended December 31, 1998, by the Named Executive
Officers and the value of such officers' unexercised options at December 31,
1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alvin J. Glasky, Ph.D. -- -- 156,923 71,250 $953,512 $287,531
Stephen Runnels 12,000 5,940 17,500 57,500 48,438 178,438
Samuel Gulko 10,000 11,250 13,000 22,000 46,313 58,563
</TABLE>
- ---------------
(1) Based upon the closing price of the common stock on December 31, 1998, as
reported by the NASDAQ National Market ($10.50 per share).
EMPLOYMENT AGREEMENT
The Company has an employment agreement with Dr. Alvin J. Glasky,
effective as of July 1, 1996. The agreement requires Dr. Glasky to devote all of
his productive time, attention, knowledge and skill to the affairs of the
Company during the term of the agreement. The agreement provides for an annual
base salary of $200,000 with annual increases and an annual bonus based on the
Company's attainment of certain performance objectives. The agreement, as
amended, ends on December 31, 1999, and may be terminated by the Company with or
without cause as defined in the agreement. The agreement also provides for
guaranteed severance payments equal to Dr. Glasky's annual base salary over the
remaining life of the agreement upon the termination of employment without cause
or upon a change in control of the Company. In connection with entering into
this agreement, Dr. Glasky was granted an incentive stock option to purchase
75,000 shares of Common Stock at an exercise price of $4.13 per share, which
vests in three equal annual increments.
STOCK OPTION PLANS
The Company has two stock option plans: the 1991 Stock Incentive Plan
(the "1991 Plan") and the 1997 Stock Incentive Plan (the "1997 Plan") (the
"Plans"). The Plans were adopted by the Company's shareholders and Board of
Directors in May 1991 and June 17, 1997, respectively.
THE 1991 INCENTIVE STOCK OPTION PLAN
The 1991 Plan, as amended, provides for grants of "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), nonqualified stock options, stock appreciation rights
("SARs") and bonus stock. The 1991 Plan, as amended, authorizes for issuance up
to 401,430 shares of the Company's common stock. Under the 1991 Plan, incentive
stock options may be granted to employees, and nonqualified stock options, SARs
and bonus stock may be granted to employees of the Company and other persons
whose participation in the 1991 Plan is determined to be in the Company's best
interest. As of December 31, 1998, there were options to purchase 181,000 shares
of common stock outstanding under the 1991 Plan.
10
<PAGE> 14
THE 1997 INCENTIVE STOCK OPTION PLAN
The 1997 Plan provides for grants of "incentive stock options" within
the meaning of the Code, nonqualified stock options and rights to purchase
shares of common stock ("Purchase Rights"). The 1997 Plan authorized for
issuance up to 500,000 shares of the Company's common stock, subject to
adjustment in the number and kind of shares subject to the 1997 Plan and to
outstanding shares in the event of stock splits, stock dividends or certain
other similar changes in the capital structure of the Company. Under the 1997
Plan, incentive stock options, nonqualified stock options and Purchase Rights
may be granted to employees of the Company and its subsidiaries and affiliates.
Nonqualified stock options and Purchase Rights may be granted to employees of
the Company and its subsidiaries and affiliates, non-employee directors and
officers, consultants and other service providers. As of December 31, 1998,
there were options to purchase 349,700 shares of common stock outstanding under
the 1997 Plan.
The Plans currently are administered by a Compensation Committee
appointed by the Board of Directors (the "Committee"), which has sole discretion
and authority, consistent with the provisions of the Plans, to determine which
eligible participants will receive options, the time when options will be
granted, the terms of options granted and the number of shares which will be
subject to options granted under the Plans.
The exercisability of options outstanding under the 1997 Plan will
accelerate upon a change in control of the Company, regardless of whether the
options are assumed or new options are issued by the successor corporation.
The exercise price of incentive stock options must be not less than the
fair market value of a share of common stock on the date that the option is
granted (110% with respect to optionees who own at least 10% of the outstanding
common stock). Nonqualified options shall have such exercise price as determined
by the Committee, but not less than 85% of the fair market value on the date of
grant. The Committee has the authority to determine the time or times at which
options granted under the Plans become exercisable, provided that options expire
no later than ten years from the date of grant (five years with respect to
optionees who own at least 10% of the outstanding common stock). Options are
nontransferable, other than upon death, by will and the laws of descent and
distribution, and incentive stock options may be exercised only by an employee
while employed by the Company or within three months after termination of
employment (one year for termination resulting from death or disability).
SECTION 401(k) PLAN
In January 1990, the Company adopted the AIT Cash or Deferred Profit
Sharing Plan (the "401(k) Plan") covering the Company's full-time employees
located in the United States. The 401(k) Plan is intended to qualify under
Section 401(k) of the Code, so that contributions to the 401(k) Plan by
employees or by the Company, and the investment earnings thereon, are not
taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by the Company, if any, will be deductible by the Company when
made. Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit ($10,000 in 1998)
and to have the amount of such reduction contributed to the 401(k) Plan. The
401(k) Plan permits, but does not require, additional matching contributions to
the 401(k) Plan by the Company on behalf of all participants in the 401(k) Plan.
The Company has not made any contributions to the 401(k) Plan.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act, as amended (the "Exchange
Act") requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent of the Company's Common Stock, to file
initial reports of ownership and reports of changes in ownership with the SEC
and the National Association of Securities Dealers, Inc. Executive officers,
directors and persons who beneficially own more than ten percent of the
Company's Common Stock are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
11
<PAGE> 15
Based solely upon its review of the copies of reporting forms furnished
to the Company, and written representations that no other reports were required,
the Company believes that all filing requirements under Section 16(a) of the
Securities Exchange Act of 1934 applicable to its directors, officers and any
persons holding 10% or more of the Company's Common Stock with respect to the
Company's fiscal year ended December 31, 1998, were satisfied on a timely basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1990, the Company issued a warrant to Dr. Alvin J. Glasky
(the "Glasky Warrant") to purchase up to 88,173 shares of common stock of the
Company at any time between September 1, 1990, and August 31, 1995, for $3.75
per share. Effective August 31, 1995, the expiration date of the Glasky warrant
was extended to August 31, 2000.
On June 30, 1990, in exchange for cancellation of $503,144 of
indebtedness for unpaid compensation, the Company issued a total of 402,517
shares of common stock in the following amounts: Dr. Alvin Glasky, 184,000
shares; Sanford Glasky (the brother of Dr. Alvin Glasky), 60,013 shares; JoAnne
Law, 24,333 shares; Luana Kruse, 19,200 shares; Rosalie Glasky (the wife of Dr.
Glasky), 28,065 shares; and John W. Baldridge, 86,906 shares (the "1990
Restricted Stock Exchange"). On December 30, 1993, in exchange for cancellation
of $690,798 of indebtedness for unpaid compensation and accrued expenses, the
Company issued a total of 276,317 shares of common stock in the following
amounts: Dr. Alvin Glasky, 169,001 shares; Sanford Glasky, 49,837 shares; JoAnne
Law, 16,559 shares; Luana Kruse, 19,800 shares; Rosalie Glasky, 19,178 shares;
and John W. Baldridge, 1,942 shares (the "1993 Restricted Stock Exchange"). Both
the 1990 Restricted Stock Exchange and the 1993 Restricted Stock Exchange
involved a risk of forfeiture whereby if the Company did not generate a minimum
of $500,000 in total operating revenues from inception through December 31,
1995, all shares would be returned to the Company with the holders forfeiting
all rights to the shares and forfeiting any claim to the previously accrued but
unpaid compensation. Effective December 31, 1995, five of the parties, all of
whom were present or past employees of the Company, entered into agreements with
the Company whereby the forfeiture date was extended from December 31, 1995 to
December 31, 1997 in exchange for increasing the minimum total operating
revenues which the Company would need to achieve in order to avoid forfeiture of
the shares from $500,000 to $1,000,000, with such revenues to be achieved by
December 31, 1997. As of December 31, 1997, when the Agreements terminated, the
Company did not achieve the revenue goals set forth in the Agreements, as
previously amended. The four former employees who are parties to the Agreements
have indicated disagreement with the Company's position and have filed a lawsuit
against the Company seeking a determination that they are entitled to keep their
shares. The Company has filed a cross-complaint against the four former
employees seeking the return and cancellation of the shares. The Company's Chief
Executive Officer and his wife have agreed to surrender to the Company for
cancellation the same proportion of their shares (a total of 400,244) as the
four former employees are required to surrender based on the final resolution of
the lawsuit. Until such time as the Company can obtain the surrender of all of
these shares and the matter is fully resolved, the Company is accounting for all
of the stock, which it has deemed forfeited, as issued and outstanding.
On June 6, 1991, the Company entered into an agreement (the "1991 Patent
Agreement") with Dr. Alvin Glasky whereby Dr. Glasky assigned to the Company all
rights to the inventions covered by United States Patent No. 5,091,432 and any
corresponding foreign applications and patents, including all continuations,
divisions, reissues and renewals of said applications and any patents issued out
of or based upon said applications (the "Assigned Rights"). The 1991 Patent
Agreement was amended on July 26, 1996. The 1991 Patent Agreement, as amended,
calls for the Company to pay Dr. Glasky a two percent royalty on all revenues
derived by the Company from the use and sale by the Company of any products
covered by these patents and applications or any patents derived from them. In
the event that Dr. Glasky's employment is terminated by the Company without
cause, the royalty rate shall be increased to five percent and in the event that
Dr. Glasky dies during the term of the 1991 Patent Agreement, Dr. Glasky's
family or estate shall be entitled to continue to receive royalties at the rate
of two percent. The 1991 Patent Agreement terminates on the later of its ten
year anniversary or the expiration of the final patent included within the
Assigned Rights. On June 30, 1996, the Company and Dr. Glasky entered into an
agreement
12
<PAGE> 16
whereby Dr. Glasky assigned to AIT all rights to the inventions covered by
United States Patent No. 5,447,939 (the "1996 Patent Agreement"). The scope of
the 1996 Patent Agreement as well as its terms and conditions are identical in
all material respects to the 1991 Patent Agreement; provided, however, that the
aggregate royalty amount with respect to any product shall be two percent (five
percent in the event of termination without cause), even if a product is based
on both patents. The 1996 Patent Agreement was also amended on July 26, 1996.
Dr. Glasky will not receive any royalties with respect to sales of products
which utilize patent rights licenses to the Company by McMaster University. A
third patent which was issued September 1, 1998, is also subject to the royalty
provisions of the 1996 Patent Agreement.
On December 31, 1993, the Company issued 200,000 shares of common stock
to Dr. Glasky in exchange for cancellation of $500,000 of indebtedness for loans
made by Dr. Glasky to the Company. Dr. Glasky received certain registration
rights with respect to these shares. The remaining $257,900 in principal on the
loans payable and accrued interest of $300,404 due to Dr. Glasky were converted
into a $558,304 promissory note which, as amended from time to time, is
currently unsecured, bears interest at 9% per annum, and is payable upon demand.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
ADMINISTRATION. Decisions on compensation of the Company's executive
officers are made by the Compensation Committee of the Board (the "Committee").
Each member of the Committee is a nonemployee Director. All decisions made by
the Committee relating to the compensation of the Company's executive officers
are reviewed by the full Board, except for decisions regarding awards under the
Company's stock option and incentive plans which are made solely by the
Committee in order for the grants under such plans to satisfy Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
EXECUTIVE OFFICER COMPENSATION POLICY. The Committee's executive
compensation policies are designed to integrate executive compensation with
long-term goals, recognize and reward attainment of management goals and
objectives, and enable the Company to attract and retain executive officers. The
Committee believes a substantial portion of each executive's compensation should
be contingent upon the attainment by the executive of specific management
objectives and also dependent upon the Company's financial performance.
Accordingly, executives are eligible for annual bonuses that correspond to
varying levels of management and Company performance.
BASE SALARY. The compensation of each executive officer is reviewed
annually by the Committee, with reference to the executive's performance, level
of responsibility and experience, to determine whether the current base salary
is appropriate. If significant changes in an executive's salary are to be
considered, the Committee shall refer to salary ranges paid executives with
comparable duties in companies of comparable size within the same industry in
the same geographic area in which the Company is located. Such salaries shall be
adjusted, if deemed appropriate by the Committee, in accordance with salary
surveys provided by nationally recognized research organizations. The base
salary of executive officers, other than the Company Chief Executive Officer,
shall be determined by the Committee after consultation with the Chief Executive
Officer. The base salary of the Chief Executive Officer is recommended by the
Committee to the full Board of Directors. Approval by the Board of Directors is
required for any change in base salary of the Chief Executive Officer. In
January 1999, the board established base salaries for the Company's executive
officers at approximately the median base compensation level for officers in
similar positions based upon a salary survey provided by a nationally recognized
research organization.
BONUSES AND STOCK OPTIONS. In addition to the base salary, the Committee
may establish a Compensation Plan setting forth a methodology for determining
incentive compensation ("Bonus"), if any, for executive officers. Such plan may
also include incentive compensation for key managers of the Company. In
accordance with the plan, the Committee shall, in consultation with the Chief
Executive Officer, establish target bonus levels for the Company's executive
officers, and key managers, if appropriate, based on financial resources of the
Company. The actual award of incentive compensation shall be determined by the
attainment of individual management goals and objectives, established to
specifically relate to the individual's position within the Company. All such
goals and objectives shall be supportive of the overall strategy and goals of
the Company. Due to the financial requirements of the Company, the Committee did
not award any cash bonuses in 1998.
13
<PAGE> 17
STOCK OPTION GRANTS AND RESTRICTED STOCK AWARDS. The Committee endorses
the position that granting stock options and restricted stock awards to the
Company" executive officers can be very beneficial to stockholders because it
aligns management's and stockholders' interests in the enhancement of
stockholder values. Accordingly, the Committee has granted stock options to the
executive offices on an annual basis. The number of options received by each
executive officer shall be fixed by the Committee after consideration of
recommendation made by the Chief Executive Officer. The options are exercisable
in installments as determined by the Committee commencing three months from the
date of grant and are granted at an exercise price equal to the price of the
Company's stock at the close of business on the date of the grant. Awards of
such Stock Options and Restricted Stock shall be determined solely by the
Committee in order that such grants satisfy Rule 16b-3 of the Securities
Exchange Act of 1934, as amended.
OTHER BENEFITS. The executive officers participate in employee benefit
programs, such as the Company's health care and vacation programs.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The compensation of Dr.
Alvin J. Glasky, the Company's Chief Executive Officer and its founder, is
determined in accordance with an Employment Agreement (the "Agreement") entered
into in July 1996. The Agreement, amended to expire December 31, 1999,
stipulates that Dr. Glasky is to receive a base salary of $200,000 per year,
which is the amount he was paid in 1998. The Compensation Committee considered
the same factors as discussed above, compared salaries of chief executive
officers of similarly-sized companies in the industry in setting the
compensation of Dr. Glasky and also considered Dr. Glasky's qualifications as a
scientist and his ability to guide the Company and to manage its scientific
programs and business strategy. Taking into consideration the financial
requirements of the Company, Dr. Glasky has not requested and the Committee has
not granted an increase in Dr. Glasky's compensation since inception of the
Agreement.
Submitted by the Compensation Committee
Eric L. Nelson, Ph.D., Chairman
Carol O'Cleireacain, Ph.D.
Paul H. Silverman, Ph.D., D.Sc.
Joseph Rubinfeld, Ph.D.
14
<PAGE> 18
PERFORMANCE GRAPH
The following graph compares the cumulative, five-year shareholder
returns on the Company's Common Stock with the shareholder returns of the NASDAQ
Stock Market Index, the Russel 2000 Index, the Standard & Poor's 500 Index. The
graph assumes that the value of the investment in the Company's Common Stock and
each index was $100.00 on September 26, 1996.
CUMULATIVE TOTAL RETURN
Based upon an Initial Investment of $100 on
September 26, 1996 with dividends reinvested
[GRAPH]
<TABLE>
<CAPTION>
16-Sept-96 31-Dec-96 30-Jun-97 31-Dec-97 30-Jun-98 31-Dec-99
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NEOT $100 $ 74 $283 $187 $233 $187
Russell 2000 $100 $106 $116 $129 $136 $126
S&P Small Cap 600 $100 $106 $118 $133 $142 $132
Custom Comp Index* $100 $109 $ 91 $ 76 $ 62 $ 68
</TABLE>
- ------------------
* The 11-Stock Custom Composite Index consists of Cambridge NeuroScience, Inc.,
Cephalon, Inc., CoConsys, Inc., Conox Pharmaceuticals, Cylotherapeutics, Inc.,
Gliutech, Inc., Guilford Pharmaceuticals, Neurocrine Biosciences Inc.,
Neurogen Corporation, Sibia Neurosciences and Vertex Pharmaceuticals.
NeoTherapeutics' total return is based upon the IPO price of $5.60 on
September 26, 1996.
PROPOSAL 2
APPROVAL OF ISSUANCE OF COMMON STOCK
PURSUANT TO CONVERSION RIGHTS UNDER A
PREFERRED STOCK FINANCING TRANSACTION
REASON FOR THIS PROPOSAL
In order to fund ongoing research and development of the Company's
products and to provide general working capital, on January 29, 1999, the
Company entered into a Preferred Stock Purchase Agreement with two institutional
investors (the "Purchase Agreement") and sold 400 shares of the Company's 5%
Series A Preferred Stock with Conversion Features (the "Series A Preferred
Stock") and warrants to purchase 75,000 shares of Common Stock, for total
consideration of $4.0 million. Under the Purchase Agreement, the Company also
has the option to sell $2.0 million of 5% Series B Preferred Stock with
Conversion Features ("Series B Preferred Stock") to the investors commencing
July 28, 1999, and ending September 16, 1999, subject to certain conditions
contained in the Purchase Agreement and the Certificate of Designation governing
the Series A Preferred Stock. A more detailed description of this transaction is
set forth below under the caption "Private Placement of Preferred Stock."
15
<PAGE> 19
The Company's Common Stock trades on the Nasdaq National Market. The
Nasdaq corporate governance standards require stockholder approval of the sale
or issuance of Common Stock in a private placement transaction at a price less
than the greater of book or market value, if the number of new shares would
equal 20% or more of the number of shares outstanding at the time the Company
enters into the transaction. As of January 29, 1999, which was the date the
Company entered into the Purchase Agreement, 20% of the number of shares of
Common Stock outstanding equaled 1,245,141 shares (the "Preferred Stock Nasdaq
Share Limit"). As described below, because the conversion price of the Series A
Preferred Stock (and the Series B Preferred Stock, if issued) varies based upon
on the market value of the Common Stock, the conversion of such Preferred Stock
could result in the issuance of a number of shares of Common Stock in excess of
the Preferred Stock Nasdaq Share Limit. For that reason, the Company seeks the
approval of such potential issuances in order to comply with the Nasdaq
standards.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting is required to
approve the issuance of the Common Stock in excess of the Preferred Stock Nasdaq
Share Limit. Broker non-votes with respect to this proposal will be treated as
neither a vote "for" nor a vote "against" the proposal, although they will be
counted in determining if a quorum is present. Abstentions will have the same
effect as a vote "against" the proposal because they represent shares present or
represented at the meeting and entitled to vote on the proposal, thereby
increasing the number of affirmative votes required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THIS PROPOSAL.
PRIVATE PLACEMENT OF PREFERRED STOCK
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PURCHASE
AGREEMENT, CERTIFICATE OF DESIGNATION OF THE COMPANY SETTING FORTH THE RIGHTS
AND PRIVILEGES OF THE SERIES A PREFERRED STOCK, AND THE FORM OF RELATED
WARRANTS. COPIES OF SUCH DOCUMENTS HAVE BEEN FILED WITH THE SECURITIES EXCHANGE
COMMISSION AS EXHIBITS TO THE COMPANY'S CURRENT REPORT ON FORM 8-K, FILED
FEBRUARY 9, 1999, AND CAN ALSO BE OBTAINED BY WRITING TO THE SECRETARY,
NEOTHERAPEUTICS, INC., 157 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618.
ISSUANCE. On January 29, 1999, the Company entered into the Purchase
Agreement with Westover Investments L.P., a Delaware limited partnership, and
Montrose Investments L.P., a Cayman Islands exempt limited partnership. Under
the Purchase Agreement, the Company issued and sold a total of 400 shares of its
5% Series A Preferred Stock with Conversion Features and warrants to purchase
75,000 shares of Common Stock, for total cash consideration of $4.0 million.
CONVERSION FEATURES. Each share of Series A Preferred Stock is
convertible into the number of shares of Common Stock equal to the quotient of
(i) $10,000 plus accrued dividends, if any, divided by (ii) the Conversion
Price. Dividends accrue at the rate of 5% per annum on the Series A Preferred
Stock and may be paid quarterly in cash or, at the Company's option, accrued and
paid in Common Stock at the time of conversion. Until May 29, 1999, the
conversion price is fixed at $13.06 per share. After May 29, 1999, the Series A
Preferred Stock is convertible at a price equal to the lesser of $13.06 or 101%
of the average of the ten lowest closing bid prices of the Common Stock
occurring in the 30 trading days preceding the particular conversion. The fixed
conversion price of $13.06 is also subject to adjustment in the event of stock
splits, stock dividends, stock combinations, stock reclassifications, certain
distributions of Common Stock and issuances of Common Stock below the then
effective conversion price (subject to certain exceptions). The right of the
holders of the Series A Preferred Stock to convert their shares is subject to
the following limitations:
16
<PAGE> 20
(1) In no event can all 400 shares of Series A Preferred Stock be
converted into more than 1,450,000 shares of Common Stock;
(2) During each month between April 29, 1999, and August 29, 1999,
no more than 25% of the Series A Preferred Stock outstanding on April
29. 1999, may be converted on a cumulative basis;
(3) No holder of Series A Preferred Stock may convert such shares
if it would result in such holder beneficially owning more than 4.999%
of the then outstanding shares of Common Stock, unless such holder
provides 75 days notice to the Company;
(4) No holder of Series A Preferred Stock may convert such shares
if it would result in such holder beneficially owning more than 9.999%
of the then outstanding shares of Common Stock, unless such holder
provides 75 days notice to the Company;
(5) All shares of Series A Preferred Stock will automatically
convert on the later of May 29, 2002, or the third anniversary of the
effectiveness of the registration statement covering resale of shares of
Common Stock issuable on conversion of the Series A Preferred Stock,
subject to certain extensions.
REDEMPTION FEATURES. If the Common Stock trades for a ten-day period at
a price above $20.00 per share or below $5.00 per share, the Company may redeem
the Series A Preferred Stock at the price per share equal to the greater of (i)
$10,000 plus accrued dividends, or (ii) the market value of the shares of Common
Stock into such share is then convertible. The holders of the Series A Preferred
Stock are also entitled to elect redemption in certain events adversely
affecting the liquidity of the underlying Common Stock. In addition, the holders
of the Series A Preferred Stock may elect redemption on a change of control of
the Company. For this purpose, a change of control includes (i) the acquisition
by any person of more than 33% of the voting securities of the Company, (ii) the
replacement of more than one-half of the members of the Board of Directors, if
not approved by the current directors or their approved replacements, (iii) the
merger of the Company into another entity, or sale of substantially all the
Company's assets, or (iv) an agreement to do any of the foregoing.
WARRANTS. In connection with the purchase of the Series A Preferred
Stock, the investors also received warrants to purchase a total of 75,000 shares
of Common Stock at an exercise price of $12.98 per share, exercisable until
January 29, 2004. The number of shares subject to such warrants and the exercise
thereof are subject to adjustment in the event of stock splits, stock dividends,
stock combinations, stock reclassifications, certain distributions of Common
Stock and issuances of Common Stock below the exercise price then in effect
(subject to certain exceptions).
POTENTIAL ISSUANCE OF SERIES B PREFERRED STOCK. Under the Purchase
Agreement, commencing July 28, 1999, and ending September 16, 1999, the Company
has the right to sell to the investor 200 shares of Series B Preferred Stock
which the Company may authorize in the future, at a total purchase price of $2.0
million. The Series B Preferred Stock shall have rights, preferences and
privileges substantially identical to, and shall rank on par with, the Series A
Preferred Stock except that the initial conversion price shall be 125% of the
average of the closing bid prices for the Company's Common Stock for the 15
trading days immediately preceding the issuance of such Series B Preferred
Stock. Conditions to the Company's ability to sell the Series B Preferred Stock
include, among others, (i) that no further approval of the Company's
stockholders be required in order to issue a number of shares of Common Stock
equal to 200% of the shares of Common Stock initially issuable upon conversion
of the Series B Preferred Stock, (ii) that the Company shall have performed its
obligations with respect to the Series A Preferred Stock and any conversion
thereof, (iii) that the registration statement registering the Common Stock
issuable upon conversion of the Series A Preferred Stock shall have been
effective for not less that the 60 days preceding the proposed sales of the
Series B Preferred Stock, (iv) that there shall have been no material adverse
changes to the Company or its prospects, and (v) that there shall have been no
change of control of the Company.
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<PAGE> 21
REGISTRATION FOR RESALE. Pursuant to a Registration Rights Agreement
which the Company entered into with Westover Investments L.P. and Montrose
Investments L.P., the Company filed on February 26, 1999, a registration
statement with the Securities Exchange Commission in order to permit the holders
of the Series A Preferred Stock to resell to the public the shares of Common
Stock that they acquire upon the conversion of the Series A Preferred Stock or
upon exercise of the related warrants. In the event the Company issues shares of
the Series B Preferred Stock, the Company has equivalent registration
obligations as to shares of Common Stock issuable upon a conversion of such
Series B Preferred Stock.
EFFECT ON OUTSTANDING COMMON STOCK
The issuance of Common Stock upon the conversion of the Series A
Preferred Stock and Series B Preferred Stock (if issued) and exercise of the
related warrants will have no effect on the rights or privileges of existing
holders of Common Stock except that the economic and voting interests of each
stockholder will be diluted as a result of such issuance. Prior to conversion,
holders of the Series A Preferred Stock and Series B Preferred Stock (if issued)
will be entitled to receive dividends and distributions upon a liquidation of
the Company in preference to claims of holders of the Common Stock.
As noted above, the exact number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock and Series B Preferred Stock (if
issued), and the resulting dilution to existing holders of Common Stock, cannot
currently be determined, and may vary with the market price of the Common Stock.
The extent of such dilution depends on the future market price of the Common
Stock, the timing of conversion of Series A Preferred Stock and Series B
Preferred Stock (if issued), and exercise of the related warrants, and the
election of the Company to accrue dividends on the Series A Preferred Stock and
Series B Preferred Stock (if issued) for payment in Common Stock upon
conversion. The potential effects of any such dilution on the existing
stockholders of the Company include the significant dilution of the current
stockholders' economic and voting interests in the Company.
CONSEQUENCES IF STOCKHOLDER APPROVAL IS NOT OBTAINED
The terms of the Series A Preferred Stock provide that the Company will
not be obligated to issue shares of Common Stock in excess of the Preferred
Stock Nasdaq Share Limit unless and until stockholder approval of the issuance
of Common Stock issuable upon conversion of the Series A Preferred Stock and
exercise of the related warrants sought hereby is obtained. In addition, unless
such stockholder approval is obtained, the Company may not be able to sell to
the investors some or all of the Series B Preferred Stock. If the stockholder
approval sought hereby is not obtained, the Nasdaq rules will prohibit the
Company from issuing with respect to the Series A Preferred Stock and related
warrants, and Series B Preferred Stock (to the extent issued) more than
1,245,141 shares of Common Stock . If the approval sought hereby is not granted
by stockholders, the Company can be required by the holders of the Series A
Preferred Stock to pay cash in lieu of converting any shares of Series A
Preferred Stock which cannot be converted because of the limitations imposed by
the Nasdaq rules. The amount of cash which the Company may be required to pay in
the event stockholder approval is not obtained will depend on the per share
market price of the Common Stock at the time of attempted conversion.
IF THE STOCKHOLDER APPROVAL SOUGHT HEREBY IS NOT OBTAINED AND THE
COMPANY IS REQUIRED TO PAY CASH RATHER THAN CONVERTING A PORTION OF THE
OUTSTANDING SHARES OF SERIES A PREFERRED STOCK, THERE CAN BE NO ASSURANCE THAT
THE COMPANY WOULD HAVE AVAILABLE THE CASH RESOURCES TO SATISFY SUCH OBLIGATIONS
OR THAT IT WOULD BE ABLE TO MAKE SUCH PAYMENTS IN COMPLIANCE WITH APPLICABLE
LAW. IN THE EVENT THE STOCKHOLDER APPROVAL SOUGHT HEREBY IS NOT OBTAINED,
COMPLIANCE WITH THIS OBLIGATION COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
COMPANY'S FINANCIAL CONDITION AND ABILITY TO IMPLEMENT ITS BUSINESS STRATEGY. IN
ADDITION, ANY DELAY IN PAYMENT OF THE AMOUNT PAYABLE WILL CAUSE SUCH AMOUNT TO
ACCRUE INTEREST AT THE RATE OF FIFTEEN PERCENT PER ANNUM UNTIL PAID.
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<PAGE> 22
INTERESTS OF CERTAIN PERSONS
Neither of the purchasers of the Series A Preferred Stock, nor any of
their affiliates, is a director or executive officer of the Company. To the
Company's knowledge, neither of the purchasers of Series A Preferred Stock nor
any of their affiliates is a 5% stockholder of the Company.
PROPOSAL 3
APPROVAL OF ISSUANCE OF COMMON STOCK
PURSUANT TO A PRIVATE
EQUITY LINE OF CREDIT AGREEMENT
REASON FOR THIS PROPOSAL
In order to provide a source of future capital for ongoing research and
development of the Company's products and general working capital, on March 27,
1998, the Company entered into a Private Equity Line of Credit Agreement (the
"Equity Line Agreement") with Kingsbridge Capital Limited (the "Investor").
Under the Equity Line Agreement, the Company has the option to sell up to $15.0
million of Common Stock to the Investor during the 30-month period commencing
August 13, 1998, and ending February 13, 2001, subject to certain conditions
contained in the Equity Line Agreement. In addition, the Company issued to the
Investor a warrant to purchase 25,000 shares of Common Stock at a price of
$11.61875 per share, subject to adjustment. A more detailed description of this
transaction is set forth below under the caption "Equity Line Agreement."
As described in Proposal 2 above, the Company's Common Stock trades on
the Nasdaq National Market. The Nasdaq corporate governance standards require
stockholder approval of the sale or issuance of Common Stock in a private
placement transaction at a price less than the greater of book or market value,
if the number of new shares would equal 20% or more of the number of shares
outstanding at the time the Company enters into the transaction. Under the
Equity Line Agreement, the Company may not sell more than 1,089,387 shares (the
"Equity Line Nasdaq Share Limit") to the Investor unless stockholder approval of
this transaction is obtained. As described below, because the number of shares
which may be sold to the Investor under the Equity Line Agreement may exceed the
Equity Line Nasdaq Share Limit, the Company seeks the approval of such potential
issuances in order to comply with the Nasdaq standards. As of March 31, 1999, an
aggregate of 615,868 shares of Common Stock had been issued and sold to the
Investor under the Equity Line Agreement for aggregate gross proceeds of $4.5
million. The Company will be able to sell an additional 473,519 shares of Common
Stock under the Equity Line Agreement without shareholder approval.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting is required to
approve the issuance of the Common Stock in excess of the Equity Line Nasdaq
Share Limit. Broker non-votes with respect to this proposal will be treated as
neither a vote "for" nor a vote "against" the proposal, although they will be
counted in determining if a quorum is present. Abstentions will have the same
effect as a vote "against" the proposal because they represent shares present or
represented at the meeting and entitled to vote on the proposal, thereby
increasing the number of affirmative votes required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THIS PROPOSAL.
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<PAGE> 23
EQUITY LINE AGREEMENT
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE EQUITY
LINE AGREEMENT, THE RELATED REGISTRATION RIGHTS AGREEMENT, AND WARRANTS. COPIES
OF SUCH DOCUMENTS HAVE BEEN FILED WITH THE SECURITIES EXCHANGE COMMISSION AS
EXHIBITS TO THE COMPANY'S REGISTRATION STATEMENT (NO. 333-52331), FILED MAY 11,
1998, AND CAN ALSO BE OBTAINED BY WRITING TO THE SECRETARY, NEOTHERAPEUTICS,
INC., 157 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618.
On March 27, 1998, the Company entered into the Equity Line Agreement
with Kingsbridge Capital Limited, a private investor (the "Investor"), under
which the Company may issue and sell, from time to time, shares of its Common
Stock for cash consideration up to an aggregate of $15 million. Pursuant to the
requirements of the Equity Line Agreement, the Company filed a registration
statement with the Securities and Exchange Commission ("SEC") in order to permit
the Investor to resell to the public any shares that it acquires pursuant to the
Equity Line Agreement. Commencing as of August 13, 1998, the date the
registration statement was declared effective by the SEC and continuing until
February 13, 2001, the Company may from time to time at its sole discretion, and
subject to certain restrictions set forth in the Equity Line Agreement, sell
("put") shares of its Common Stock to the Investor at a price equal to 88
percent of the then current average market price of the Company's Common Stock,
as determined under the Equity Line Agreement. Puts can be made every 15 days in
amounts ranging from a minimum of $250,000 to a maximum of $2,000,000, depending
on the trading volume and the market price of the Common Stock at the time of
each put. The Company was required to put at least $1,000,000 of its Common
Stock to the Investor over the life of the Equity Line Agreement, which
requirement has been satisfied.
Under the Equity Line Agreement, the average market price of the
Company's Common Stock for purposes of calculating the purchase price to be paid
by the Investor will be calculated as the average of the lowest trade prices of
the Common Stock (as reported by Nasdaq) on each of the five days on which the
Nasdaq National Market is open for business (a "trading day"), during the period
which includes the two trading days preceding the day on which the Company
delivers notice to the Investor that the Company is exercising a put (a "Put
Notice"), the trading day on which the Put Notice is delivered, and the two
trading days following the trading day on which the Put Notice is delivered.
The Company's ability to put shares of its Common Stock, and the
Investor's obligation to purchase the shares, is conditioned upon the
satisfaction of certain conditions. These conditions include: (i) the continued
effectiveness of the registration statement, (ii) the representations and
warranties of the Company set forth in the Equity Line Agreement must be
accurate as of the date of each put, (iii) the Company shall have performed and
complied with all obligations under the Equity Line Agreement, the Registration
Rights Agreement entered into between the Company and the Investor in connection
with the Equity Line Agreement and the Warrant required to be performed as of
the date of each put, (iv) no statute, rule, regulation, executive order,
decree, ruling or injunction shall be in effect which prohibits or directly and
adversely affects any of the transactions contemplated by the Equity Line
Agreement, (v) at the time of a put, there shall have been no material adverse
change in the Company's business, operations, properties, prospects or financial
condition since the date of filing of the Company's most recent periodic report
filed with the SEC pursuant to the Securities Exchange Act of 1934, (vi) the
Company's Common Stock shall not have been delisted from the Nasdaq National
Market nor suspended from trading, (vii) the number of shares to be put to the
Investor, together with any shares then held by the Investor, shall not exceed
9.9% of all shares of Common Stock of the Company that would be outstanding upon
completion of the put, (viii) the Company's Common Stock must have a minimum bid
price of $3.00 per share at the time of the put, and (ix) the average trading
volume of the Company's Common Stock for 26 of the 30 consecutive trading days
immediately preceding a put must be at least 10,000 shares per day.
The Investor has agreed that it will not engage in short sales of the
Company's Common Stock except during the three-day period commencing on the date
the Company elects to exercise a put and sell shares to the Investor and ending
three days later on the date certificates representing the shares are delivered
to the Investor. Any short sales by the Investor may be covered only with shares
of Common Stock issued to the Investor pursuant to the Equity Line Agreement.
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<PAGE> 24
In conjunction with the Equity Line Agreement, on March 27, 1998, the
Company issued to the Investor the Warrant, which entitles the holder to
purchase 25,000 shares of Common Stock of the Company at a price of $11.61875
per share. The Warrant is exercisable until September 24, 2001. The Warrant
contains provisions that protect against dilution by adjustment of the exercise
price and the number of shares issuable thereunder upon the occurrence of
certain events, such as a merger, stock split or reverse stock split, stock
dividend or recapitalization. The exercise price of the Warrant is payable
either (i) in cash or (ii) by a "cashless exercise", in which that number of
shares of Common Stock underlying the Warrant having a fair market value at the
time of exercise equal to the aggregate exercise price are cancelled as payment
of the exercise price.
EFFECT ON OUTSTANDING COMMON STOCK
The issuance of Common Stock under the Equity Line Agreement will have
no effect on the rights or privileges of existing holders of Common Stock except
that the economic and voting interests of each stockholder will be diluted as a
result of such issuance.
As noted above, the exact number of shares of Common Stock issuable
under the Equity Line Agreement, and the resulting dilution to existing holders
of Common Stock, cannot currently be determined, and will vary with the extent
to which the Company utilizes the Equity Line Agreement, the market price of the
Common Stock, and exercise of the related warrants. The potential effects of any
such dilution on the existing stockholders of the Company include the
significant dilution of the current stockholders' economic and voting interests
in the Company.
CONSEQUENCES IF STOCKHOLDER APPROVAL IS NOT OBTAINED
The terms of the Equity Line Agreement provide that the Company will not
be permitted to issue shares of Common Stock thereunder in excess of the Equity
Line Nasdaq Share Limit unless and until stockholder approval of the issuance of
Common Stock sought hereby is obtained. If the stockholder approval sought
hereby is not obtained, the Nasdaq rules will prohibit the Company from issuing
under the Equity Line Agreement more than 1,089,387 shares of Common Stock, of
which 615,868 shares have already been issued. As a result, the Company's
ability to use the Equity Line Agreement to raise capital will be limited and,
in the event the Company needs additional capital, it will have to seek
alternatives which may be less favorable or unavailable.
INTERESTS OF CERTAIN PERSONS
Neither the Investor, nor any of its affiliates, is a director or
executive officer of the Company. To the Company's knowledge, neither the
Investor nor any of its affiliates is a 5% stockholder of the Company.
PROPOSAL 4
INCREASE IN THE NUMBER OF SHARES IN THE
NEOTHERAPEUTICS, INC. 1997 STOCK INCENTIVE PLAN
The Board of Directors has approved, subject to stockholder approval, an
amendment to the Company's 1997 Stock Incentive Plan (the "1997 Plan") to
increase the number of shares of Common Stock authorized for issuance thereunder
from 500,000 to 1,250,000. As of April 5, 1999, there were available for
issuance under the 1997 Plan approximately 150,300 shares of common Stock. The
additional 750,000 shares will be reserved for future use by being offered to
individuals who meet the qualifications for participation in the 1997 Plan. The
Board of Directors believes that the proposed amendment to increase the number
of shares of Common Stock authorized under the 1997 Plan is necessary to
continue the effectiveness of the 1997 Plan in achieving the Company's objective
to attract, motivate and retain the services of qualified employees, officers
and directors (including non-employee
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<PAGE> 25
officers and directors), consultants and other service providers. The Board of
Directors believes that the successful development of the Company's business
largely depends on the judgment, initiative and efforts of such individuals, and
that stock options provide an opportunity to participate in the success and
increased value of the Company.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting is required to
approve the increase in the number of shares in the 1997 Plan. Broker non-votes
with respect to this proposal will not be counted for determining whether this
proposal is approved. Proxies marked "abstain" or a vote to abstain by a
stockholder present in person at the Annual Meeting will have the same legal
effect as a vote "against" the matter because it represents a share present or
represented at the meeting and entitled to vote, thereby increasing the number
of affirmative votes required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
DESCRIPTION OF THE 1997 PLAN
The following description of the principal features of the 1997 Plan is
qualified in its entirety by reference to the text of the 1997 Plan, a copy of
which can be obtained free of charge by writing to the Secretary,
NeoTherapeutics, Inc., 157 Technology Drive, Irvine, California 92618.
The 1997 Plan as originally adopted authorized up to 500,000 shares of
Common Stock for issuance. If the amendment is approved, the total authorized
shares of Common Stock would be 1,250,000, subject to adjustment in the number
of outstanding shares in the event of stock splits, stock dividends or certain
other similar changes in the capital structure of the Company. The 1997 Plan
provides for grants of "incentive stock options" as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options and rights to purchase shares of Common Stock ("Purchase Rights").
Incentive stock options, nonqualified stock options and Purchase Rights may be
granted to employees of the Company and its subsidiaries and affiliates.
Nonqualified stock options and Purchase Rights may be granted to employees of
the Company and its subsidiaries and affiliates, non-employee directors and
officers, consultants and other service providers. As of April 16, 1999,
approximately 42 persons were eligible to participate in the 1997 Plan.
The Board of Directors, or a committee consisting of two or more members
of the Board of Directors, administers the 1997 Plan (the "Administrator"). The
1997 Plan currently is administered by the Compensation Committee of the Board
of Directors. The Administrator has the full power and authority to interpret
the 1997 Plan, select the recipients of options and Purchase Rights, determine
and authorize the type, terms and conditions of, including vesting provisions,
and the number of shares subject to, grants under the 1997 Plan, and adopt,
amend and rescind rules relating to the 1997 Plan. The term of options may not
exceed 10 years from the date of grant 95 years in the case of an incentive
stock option granted to a person who owns more than 10% of the combined voting
power of all classes of stock of the Company). The option exercise price for
each share granted pursuant to a nonqualified stock option may not be less than
85% of the fair market value of a share of Common Stock at the time such option
is granted. The option exercise price for each share granted pursuant to an
incentive stock option may not be less than 100% of the fair market value of a
share of Common Stock at the time such option is granted (110% of fair market
value in the case of an incentive stock option granted to a person who owns more
than 10% of the combined voting power of all classes of stock of the Company.
There is no minimum purchase price for shares of Common Stock purchased pursuant
to a Purchase right, and any such purchase price shall be determined by the
Administrator. The maximum number of shares for which options or Purchase Rights
may be granted to any one person during any one calendar year under the 1997
Plan is 100,000. The aggregate fair market value of the Common Stock (determined
as of the date of grant) with respect to which incentive stock options granted
under the 1997 Plan or any other stock option plan of the Company become
exercisable for the first time by any optionee during any calendar year may not
exceed $100,000. The exercisability of options outstanding under the 1997 Plan
will accelerate upon a change in control of the Company, regardless of whether
the options are assumed or new options are issued by the successor corporation.
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<PAGE> 26
The option price of an incentive stock option or nonqualified stock
option is payable in full upon exercise, and the purchase price of stock
purchased pursuant to a Purchase Right must be paid in full upon the acceptance
of the Purchase Right. Payment of the option price upon exercise of a stock
option or for shares purchased pursuant to a Purchase Right may be made in cash,
by check, by the delivery of shares of Common Stock (valued at their fair market
value as of the date of the exercise of an option or Purchase Right), by the
optionee's or purchaser's promissory note in a form and on terms acceptable to
the Administrator, by the cancellation of indebtedness of the Company to the
optionee or purchaser, by the waiver of compensation due or accrued to the
optionee or purchaser for services rendered, or by any combination of the
foregoing methods of payment. In addition, the option price for options granted
under the 1997 Plan may be made by a "same day sale" commitment from the
optionee and a broker-dealer that is a member of the National Association of
Securities Dealers, Inc. ("NASD Dealer") whereby the optionee irrevocably elects
to exercise his or her option and to sell a portion of the shares so purchased
to pay for the exercise price and whereby the NASD Dealer irrevocably commits
upon receipt of such shares to forward the Exercise Price directly to the
Company, by a "margin" commitment from the optionee and an NASD Dealer whereby
the optionee irrevocably elects to exercise his or her option and to pledge the
shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
exercise price directly to the Company, or any combination of the foregoing
methods of payment.
Neither options nor Purchase Rights granted under the 1997 Plan may be
transferred other than by will or by the laws of descent and distribution.
Shares purchased pursuant to Purchase Rights generally shall be restricted for a
period of time, during which such shares may be repurchased by the Company, and
therefore these share may not be sold, assigned, pledged or transferred until
such time as the Company no longer has the right to reacquire any such shares.
The Board of Directors may alter, amend, suspend or terminate the 1997
Plan at any time. However, any changes which affect or impair the rights of any
person who holds an outstanding stock option or Purchase Right may not be
effected without such person's consent. Unless sooner terminated by the Board of
Directors, the 1997 Plan will terminate on May 2, 2007.
Any individual is eligible to receive grants of options or Purchase
Rights under the 1997 Plan. The Administrator shall determine who may be
selected to receive option or Purchase Rights, and shall determine the number of
options or Purchase rights that may be granted to any individual. The following
table contains information concerning certain stock options granted under the
1997 Plan during the year ended December 31, 1998:
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<PAGE> 27
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE NUMBER
NAME AND POSITION ($/SHARE) OF SHARES
----------------- -------------- ---------
<S> <C> <C>
Alvin J. Glasky, Ph.D., Chairman of the Board, $8.00 65,000
Chief Executive Officer and President
Stephen Runnels, Executive Vice President $8.00 25,000
Samuel Gulko, Chief Financal Officer, Secretary $8.00 25,000
and Treasurer
All Current Executive Officers as a Group
(4 persons) $8.00 140,000
Non-Executive Director Group (6 persons) $8.48 100,000
Non-Executive Officer Employee Group (28 persons) $8.26 69,700
</TABLE>
- ----------
* As of April 5, 1999, the market value of the Company's Common Stock as
reported by the Nasdaq Stock Market was $9.125 per share.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is intended for
general information only. State and local income tax consequences are not
discussed, and may vary from locality to locality.
INCENTIVE STOCK OPTIONS. There is no taxable income to an employee when
an incentive stock option is granted or when that option is exercised; however,
generally the amount by which the fair market value of the shares at the time of
exercise exceeds the option price will be included in the optionee's alternative
minimum taxable income upon exercise. If stock received on exercise of an
incentive stock option is disposed of in the same year the option was exercised,
and the amount realized is less than the stock's fair market value at the time
of exercise, the amount includable in the alternative minimum taxable income
will be the amount realized upon the sale or exchange of the stock, less the
taxpayer's basis in the stock. Gain realized by an optionee upon the sale of the
stock issued upon exercise of an incentive stock option is taxable as long-term
capital gain, and no tax deduction is available to the Company, unless the
optionee disposes of the stock within two years after the date of grant of the
option or within one year after the date of exercise. In such event the
difference between the option exercise price and the fair market value of the
shares on the date of the optionee's exercise will be taxed at ordinary income
rates, and , subject to Section 162(m) of the Code (which limits the
deductibility of compensation in excess of $1,000,000 for certain executive
officers), the Company will be entitled to a deduction to the extent the
employee must recognize ordinary income.
NONQUALIFIED STOCK OPTIONS. The recipient of a nonqualified stock option
will not realize taxable income upon the grant of the option, nor will the
Company be entitled to take any deduction. Upon the exercise of a nonqualified
stock option, the optionee will realize ordinary income and, subject to Section
162(m) of the Code, the Company will be entitled to a deduction in an amount
equal to the difference between the option exercise price and the fair market
value of the stock on the date of exercise. The Company may be required to
withhold taxes on the ordinary income realized by an optionee upon exercise of
nonqualified stock options in order to be entitled to the tax deduction. An
optionee's basis for the stock for purposes of determining gain or loss on any
subsequent disposition of the shares generally will be the fair market value of
the stock on the date of exercise of the nonqualified stock option.
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<PAGE> 28
PURCHASE RIGHTS. The recipient of restricted stock pursuant to a
Purchase Right will not cause a recipient to realize taxable income until the
expiration of any repurchase rights retained by the Company with respect to such
stock, unless the recipient makes an election under Section 83(b) of the Code to
be taxed as of the date of purchase. If no repurchase rights are retained or if
a Section 83(b) election is made, the participant will recognize ordinary income
in an amount equal to the difference between the purchase price paid for the
shares and the fair market value of such shares on the date of purchase. If no
Section 83(b) election is made or if repurchase rights are retained, the
recipient will realize taxable income on each date that the recipient's
ownership rights vest (i.e., when the Company no longer has the right to
repurchase all or a portion of the shares). The recipient will recognize
ordinary income, and, subject to Section 162(m) of the Code, the Company will be
entitled to a deduction on each date shares vest in an amount equal to the
excess of the fair market value of such shares on that date over the purchase
price paid for such shares. However, if the recipient is subject to Section
16(b) of the Exchange Act, and if no Section 83(b) election was made at the time
of purchase, the date that ordinary income is recognized for shares which vest
within six months of purchase date shall be deferred to six months from the date
of purchase.
PROPOSAL 5
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP to continue as
the Company's independent public accountants for the year ending December 31,
1999, and to audit the books and accounts of the Company for that year, subject
to ratification of its selection by the stockholders at the Annual Meeting.
Arthur Andersen LLP has served as the independent accountants of the Company
since 1989. Representatives of Arthur Andersen LLP will be present at the Annual
Meeting to respond to appropriate questions from stockholders and will have an
opportunity to make a statement if they so desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the 2000
Annual Meeting of Stockholders and inclusion in the Company's proxy statement
with respect to such meeting should arrange for such proposal to be delivered to
the Company at its principal place of business no later than December 31, 1999
in order to be considered for inclusion in the Company's proxy statement
relating to such meeting. Matters pertaining to such proposals, including the
number and length thereof, and the eligibility of persons entitled to have such
proposals included, are regulated by the Securities Exchange Act of 1934, the
Rules and Regulations of the Securities and Exchange Commission and other laws
and regulations to which interested persons should refer.
On May 21, 1998, the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act of
1934, as amended. The amendment to Rule 14a-4 (C) (1) governs the Company's use
of its discretionary proxy voting authority with respect to a stockholder
proposal that is not addressed in the Company's proxy statement. The new
amendment provides that if a proponent of a proposal fails to notify the Company
at least 45 days prior to the month and day of mailing of the prior year's proxy
statement, then the Company will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussions of
the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of Stockholders, if
the Company is not provided notice of a stockholder proposal, which the
stockholder has not previously sought to include in the Company's proxy
statement, by March 23, 1999, the Company will be allowed to use its
discretionary voting authority if such proposal is raised at the meeting.
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OTHER MATTERS
The Board of Directors knows of no other business to be acted upon at
the Annual Meeting. However, if any other business properly comes before the
Annual Meeting, the persons named in the enclosed proxy will have the discretion
to vote on such matters in accordance with their best judgment.
The financial information included in the Company's Annual Report to
Stockholders which is being mailed to each stockholder with this Proxy
Statement, is hereby incorporated by reference.
April 26, 1999 By Order of the Board of Directors
Samuel Gulko
Secretary
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APPENDIX I
NEOTHERAPEUTICS, INC.
1997 STOCK INCENTIVE PLAN
This 1997 STOCK INCENTIVE PLAN (the "Plan") is hereby established by
NeoTherapeutics, Inc. (the "Company"), and adopted by its Board of Directors as
of the 2nd day of May, 1997 (the "Effective Date").
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees, officers and
directors (including non-employee officers and directors), and consultants and
other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends,
and (b) to provide additional incentives to such persons or entities to devote
their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company
and thereby have an interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of securities of the Company possessing more than fifty
percent (50%) of the total combined voting power of all outstanding voting
securities of the Company; (ii) a merger or consolidation in which the Company
is not the surviving entity, except for a transaction in which the holders of
the outstanding voting securities of the Company immediately prior to such
merger or consolidation hold, in the aggregate, securities possessing more than
fifty percent (50%) of the total combined voting power of all outstanding voting
securities of the surviving entity immediately after such merger or
consolidation; (iii) a reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of all outstanding voting securities of
<PAGE> 31
the Company are transferred to or acquired by a person or persons different from
the persons holding those securities immediately prior to such merger; (iv) the
sale, transfer or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company; or (v)
the approval by the shareholders of a plan or proposal for the liquidation or
dissolution of the Company.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock, no par value,
of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 EFFECTIVE DATE. "Effective Date" means the date on which the Plan is
adopted by the Board, as set forth on the first page hereof.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per share
of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
NASDAQ market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the closing sale price on the date of valuation on
such NASDAQ market system or principal stock exchange on which the Common Stock
is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the
Common Stock on such NASDAQ market system or such exchange on the next preceding
day for which a closing sale price is reported.
(b) If the Common Stock is not then listed or admitted to trading
on a NASDAQ market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked prices
of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of evaluation, which determination
shall be conclusive and binding on all interested parties.
2.12 INCENTIVE OPTION. "Incentive Option" means any Option designated
and qualified as an "incentive stock option" as defined in Section 422 of the
Code.
2
<PAGE> 32
2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member
of the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is
not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Shareholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement"
means an Option Agreement with respect to a Nonqualified Option.
2.17 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.18 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.21 PARTICIPANT. "Participant" means an individual or entity who holds
an Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 PURCHASE PRICE. "Purchase Price" means the purchase price per share
of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.24 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.26 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
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<PAGE> 33
2.27 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company
or of an Affiliated Company (including members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Options or Rights to Purchase in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 100,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of 1,250,000 shares of Common
Stock may be issued under the Plan, subject to adjustment as to the number and
kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation,
in the event that (a) all or any portion of any Option or Right to Purchase
granted or offered under the Plan can no longer under any circumstances be
exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or
Stock Purchase Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or such Right to Purchase, or the shares so
reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
4
<PAGE> 34
ARTICLE 5.
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered
by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Incentive Option is granted is a 10% Shareholder on the date
of grant, the Exercise Price shall not be less than 110% of Fair Market Value on
the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and provisions for
termination of each Option shall be as fixed by the Administrator, but no Option
may be exercisable more than ten (10) years after the date it is granted. An
Incentive Option granted to a person who is a 10% Shareholder on the date of
grant shall not be exercisable more than five (5) years after the date it is
granted.
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<PAGE> 35
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, any Option may be
assigned or transferred in any manner which an "incentive stock option" is
permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a shareholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
ARTICLE 6.
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights
with respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions,
payment of the Purchase Price upon acceptance of a Right to Purchase Restricted
Stock may be made, in the discretion of the Administrator, by: (a) cash; (b)
check; (c) the surrender of shares of Common
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<PAGE> 36
Stock owned by the Offeree that have been held by the Offeree for at least six
(6) months, which surrendered shares shall be valued at Fair Market Value as of
the date of such exercise; (d) the Offeree's promissory note in a form and on
terms acceptable to the Administrator; (e) the cancellation of indebtedness of
the Company to the Offeree; (f) the waiver of compensation due or accrued to the
Offeree for services rendered; or (g) any combination of the foregoing methods
of payment or any other consideration or method of payment as shall be permitted
by applicable corporate law.
6.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a shareholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares
have vested in accordance with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement. In the event of
termination of a Participant's employment, service as a director of the Company
or Service Provider status for any reason whatsoever (including death or
disability), the Stock Purchase Agreement may provide, in the discretion of the
Administrator, that the Company shall have the right, exercisable at the
discretion of the Administrator, to repurchase (i) at the original Purchase
Price, any shares of Restricted Stock which have not vested as of the date of
termination, and (ii) at Fair Market Value, any shares of Restricted Stock which
have vested as of such date, on such terms as may be provided in the Stock
Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be assignable
or transferable except by will or the laws of descent and distribution or as
otherwise provided by the Administrator.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
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<PAGE> 37
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or release or waive any
repurchase rights of the Company with respect to Restricted Stock; (h) to extend
the exercise date of any Option or acceptance date of any Right to Purchase; (i)
to provide for rights of first refusal and/or repurchase rights; (j) to amend
outstanding Option Agreements and Stock Purchase Agreements to provide for,
among other things, any change or modification which the Administrator could
have provided for upon the grant of an Option or Right to Purchase or in
furtherance of the powers provided for herein; and (k) to make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the Plan. Any
action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of the
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
ARTICLE 8.
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In order to preserve a Participant's rights in
the event of a Change in Control of the Company, (i) the time period relating to
the exercise or realization of all outstanding Options, Rights to Purchase and
Restricted Stock shall automatically accelerate immediately prior to the
consummation of such Change in Control, and (ii) with respect to Options and
Rights to Purchase, the Administrator in its discretion may, at any time an
Option or Right to Purchase is granted, or at any time thereafter, take one or
more of the following actions: (A) provide for the purchase or exchange of each
Option or Right to Purchase for an amount of cash or other property having a
value equal to the difference, or spread, between (x) the value of the cash or
other property that the Participant would have received pursuant to such Change
in Control transaction in
8
<PAGE> 38
exchange for the shares issuable upon exercise of the Option or Right to
Purchase had the Option or Right to Purchase been exercised immediately prior to
such Change in Control transaction and (y) the Exercise Price of such Option or
the Purchase Price under such Right to Purchase, (B) adjust the terms of the
Options and Rights to Purchase in a manner determined by the Administrator to
reflect the Change in Control, (C) cause the Options and Rights to Purchase to
be assumed, or new rights substituted therefor, by another entity, through the
continuance of the Plan and the assumption of outstanding Options and Rights to
Purchase, or the substitution for such Options and Rights to Purchase of new
options and new rights to purchase of comparable value covering shares of a
successor corporation, with appropriate adjustments as to the number and kind of
shares and Exercise Prices, in which event the Plan and such Options and Rights
to Purchase, or the new options and rights to purchase substituted therefor,
shall continue in the manner and under the terms so provided, or (D) make such
other provision as the Administrator may consider equitable. If the
Administrator does not take any of the forgoing actions, all Options and Rights
to Purchase shall terminate upon the consummation of the Change in Control and
the Administrator shall cause written notice of the proposed transaction to be
given to all Participants not less than fifteen (15) days prior to the
anticipated effective date of the proposed transaction.
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionees more favorable tax treatment than that applicable
to Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10.
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised or Restricted Stock issued under the Plan. To
the extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem
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<PAGE> 39
appropriate, permit a Participant to satisfy his or her obligation to pay any
such tax, in whole or in part, up to an amount determined on the basis of the
highest marginal tax rate applicable to such Participant, by (a) directing the
Company to apply shares of Common Stock to which the Participant is entitled as
a result of the exercise of an Option or as a result of the purchase of or lapse
of restrictions on Restricted Stock or (b) delivering to the Company shares of
Common Stock owned by the Participant. The shares of Common Stock so applied or
delivered in satisfaction of the Participant's tax withholding obligation shall
be valued at their Fair Market Value as of the date of measurement of the amount
of income subject to withholding.
ARTICLE 11.
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits
under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Participant to be
consideration for, or an inducement to, or a condition of, the employment of any
Participant. Nothing contained in the Plan shall be deemed to give the right to
any Participant to be retained as an employee of the Company or any Affiliated
Company or to limit the right of the Company or any Affiliated Company to
discharge any Participant at any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
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[FRONT OF PROXY CARD]
PROXY
NEOTHERAPEUTICS, INC.
157 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF NEOTHERAPEUTICS, INC.
The undersigned hereby appoints Dr. Alvin J. Glasky and Samuel Gulko,
and each of them individually, the attorney, agent and proxy of the undersigned,
with full power of substitution, to vote all the shares of NEOTHERAPEUTICS, INC.
which the undersigned is entitled to vote at the 1999 Annual Meeting of
Stockholders to be held at the Company's corporate headquarters located at 157
Technology Drive, Irvine, California, 92618 on June 14, 1999, at 3:30 P.M., and
at any and all adjournments or postponements thereof, as follows:
1. Election of Class II Directors:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as indicated to the to vote for all nominees
contrary below listed below
ALVIN J. GLASKY, PH.D., MARK J. GLASKY, CAROL O'CLEIREACAIN, PH.D.
AND JOSEPH RUBINFELD, PH.D.
(INSTRUCTIONS: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below.)
---------------------------------------------------------
2. Proposal to approve the issuance of common stock pursuant to conversion
rights under a preferred stock financing transaction:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the issuance of common stock pursuant to a private
equity line of credit agreement:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve the increase in the number of shares issuable under the
1997 Stock Incentive Plan by 750,000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Proposal to ratify the selection of Arthur Andersen LLP as independent
public accountants for the Company:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This Proxy when properly executed will be voted in the manner directed
above. If no direction is given, this proxy will be voted FOR the election of
the nominees listed above and FOR each of proposals 2, 3, 4 and 5.
IMPORTANT--PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
- -------------------------------------------------------------------------------
(continued from reverse side)
This Proxy confers discretionary authority to vote on any other matters
as may properly come before the meeting. The undersigned acknowledges receipt of
the Notice of Annual Meeting of Stockholders and the Proxy Statement (with all
enclosures and attachments) dated April 29, 1999.
Dated: , 1999
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Signature
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Signature if held jointly
Please date this Proxy and sign it
exactly as your name or names
appear hereon. When shares are
held by two or more persons, both
should sign. When signing as an
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If shares are
held by a corporation, please sign
in full corporate name by the
President or other authorized
officer. If shares are held by a
partnership, please sign in
partnership name by an authorized
person.
Please mark, sign, date and return this Proxy promptly using the
enclosed envelope. If your address is incorrectly shown, please print changes.
[ ] I/we plan to attend the Annual Meeting of Stockholders.
