<PAGE>
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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
NEXELL THERAPEUTICS INC.
------------------------
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
Nexell Therapeutics Inc.
9 Parker
Irvine, California 92618
(949) 470-9011
April 24, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of Nexell
Therapeutics Inc., which will be held at The Doubletree Hotel, 90 Pacifica,
Irvine, California on June 14, 2000. The Annual Meeting will begin promptly at
9:00 a.m. Pacific Daylight Time.
The accompanying Proxy Statement, which you are urged to read carefully,
provides important information regarding matters that will be considered and
voted upon at the Annual Meeting. In addition to electing directors of the
Company and ratifying the appointment of the independent auditors, stockholders
will be asked to approve an increase in the amount of shares issuable under the
Company's 1997 Incentive and Non-Incentive Stock Option Plan; to amend the
Company's Amended and Restated Certificate of Incorporation to effect a 1 for 4
"reverse stock split" whereby the Company would issue one new share of Common
Stock in exchange for four shares of outstanding Common Stock; and, conditioned
upon approval of the reverse stock split, to amend the Company's Amended and
Restated Certificate of Incorporation to reduce the authorized shares of Common
Stock from 160,000,000 to 80,000,000.
These are very important matters that have significant impact on the Company.
The accompanying Notice and Proxy Statement describe these proposals. We urge
you to read this information carefully and vote your shares promptly. The
directors and officers of the Company hope that as many stockholders as possible
will be present at the meeting. BECAUSE THE VOTE OF EACH STOCKHOLDER IS
IMPORTANT, WE ASK THAT YOU SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED, WHETHER OR NOT YOU NOW PLAN TO ATTEND THIS MEETING. This will
not limit your right to attend the meeting or to change your vote at the
meeting.
We appreciate your cooperation and interest in the Company. To assist us in
preparing for the meeting, please return your proxy card at your earliest
convenience.
On behalf of the Board of Directors, I look forward to seeing you on June 14th.
Sincerely,
Richard L. Dunning
Chairman of the Board
and Chief Executive Officer
<PAGE>
NEXELL THERAPEUTICS INC.
9 Parker
Irvine, California 92618
(949) 470-9011
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 14, 2000
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Nexell
Therapeutics Inc. will be held at the Doubletree Hotel, 90 Pacifica Avenue,
Irvine, California on Wednesday, June 14, 2000 at 9:00 a.m., Pacific Daylight
Time, to consider and act upon the following proposals:
1. To elect a Board of eight directors;
2. To approve a proposal to amend the Company's Amended and Restated
Certificate of Incorporation, as amended, to effect a 1 for 4 reverse
stock split, whereby the Company would issue one new share of Common
Stock in exchange for four shares of outstanding Common Stock;
3. Conditioned upon approval of the reverse stock split, to approve a
proposal to amend the Company's Amended and Restated Certificate of
Incorporation, as amended, to reduce the authorized shares of Common
Stock from 160,000,000 to 80,000,000;
4. To increase the number of shares of Common Stock issuable under the
Company's 1997 Incentive and Non-Incentive Stock Option Plan from
3,000,000 to 5,250,000;
5. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 2000; and
6. To transact such business as may properly come before the Annual Meeting
or any adjournment or postponement thereof.
The foregoing items of business are described in the Proxy Statement
accompanying this notice. Only common stockholders of record at the close of
business on April 17, 2000, the Record Date for the Annual Meeting, are entitled
to notice of and to vote at the Annual Meeting.
The Company's Annual Report to Stockholders for the year ended December 31, 1999
containing audited financial statements accompanies this Proxy Statement.
In compliance with Section 219 of the General Corporation Law of the State of
Delaware, a list of the stockholders entitled to vote at the Annual Meeting will
be open for examination by any stockholder for any purpose germane to the Annual
Meeting during ordinary business hours for a period of ten days prior to the
Annual Meeting at the offices of the Company. The list of stockholders will be
available for examination at the site of the Annual Meeting on the meeting date
from 8:30 a.m. until adjournment of the meeting.
By Order of the Board of Directors,
William A. Albright, Jr., Secretary
Irvine, California
April 24, 2000
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ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF A BROKER, BANK OR OTHER NOMINEE IS THE RECORD HOLDER OF
YOUR SHARES AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE
---
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
- -----------------------------------------
YOU CAN VOTE IN ONE OF THREE WAYS:
(1) Use the toll-free telephone number on your proxy card to
vote by phone;
(2) Visit the web site noted on your proxy card to vote via the
Internet; or
(3) Sign, date and return your proxy card in the enclosed
envelope to vote by mail.
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NEXELL THERAPEUTICS INC.
9 Parker
Irvine, California 92618
(949) 470-9011
PROXY STATEMENT
Annual Meeting of Stockholders
To Be Held On June 14, 2000
INTRODUCTION
General
This Proxy Statement is being furnished to stockholders of Nexell Therapeutics
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Company's Board of Directors for use at the
Annual Meeting of Stockholders to be held at the Doubletree Hotel, 90 Pacifica
Avenue, Irvine, California on Wednesday, June 14, 2000 at 9:00 a.m., Pacific
Daylight Time, and any and all adjournments or postponements thereof. The cost
of the solicitation will be borne by the Company, which has retained Morrow &
Co., Inc. at a fee of $7,500 plus expenses, to assist in the solicitation.
It is expected that this Proxy Statement and the accompanying proxy card will be
first mailed to stockholders on or about May 5, 2000.
Matters to be Considered at the Annual Meeting
At the Annual Meeting, the stockholders will be asked to consider and vote upon
the following proposals:
1. To elect a Board of eight directors;
2. To approve a proposal to amend the Company's Amended and Restated
Certificate of Incorporation, as amended, to effect a 1 for 4 reverse
stock split, whereby the Company would issue one new share of Common
Stock in exchange for four shares of outstanding Common Stock;
3. Conditioned upon approval of the reverse stock split, to approve a
proposal to amend the Company's Amended and Restated Certificate of
Incorporation, as amended, to reduce the authorized shares of Common
Stock from 160,000,000 to 80,000,000;
4. To increase the number of shares of Common Stock issuable under the
Company's 1997 Incentive and Non-Incentive Stock Option Plan from
3,000,000 to 5,250,000;
5. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 2000; and
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6. To transact such business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Voting at the Annual Meeting
Stockholders of record of the Company's common stock, $.001 par value (the
"Common Stock") at the close of business on April 17, 2000 (the "Record Date")
are entitled to notice of and to vote at the Annual Meeting, each such holder
being entitled to one vote per share on each matter to be considered at the
Annual Meeting. On the Record Date, there were 74,443,657 shares of Common Stock
issued and outstanding. Holders of the Company's Series A Preferred Stock and
Series B Preferred Stock are not entitled to vote at the Annual Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting (37,221,829 shares outstanding of the 74,443,657 shares
outstanding) is necessary to constitute a quorum at the Annual Meeting.
The election of each of the eight nominees identified in this Proxy Statement
will require the affirmative vote of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote.
Approval of the amendments to the Amended and Restated Certificate of
Incorporation will require the affirmative vote of the holders of a majority of
the issued and outstanding shares of Common Stock (37,221,829 shares of the
74,443,657 shares outstanding).
Ratification of the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 2000 and approval of the amendment to
the Company's 1997 Incentive and Non-Incentive Stock Option Plan will each
require the affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote.
If the enclosed proxy card is properly executed and returned to the Company
prior to voting at the Annual Meeting, the shares represented thereby will be
voted in accordance with the instruction marked thereon, subject to the
following conditions:
Election of Directors
Shares represented by a proxy marked "WITHHOLD AUTHORITY" to vote for (i) all
eight nominees or (ii) any individual nominee(s) for election as directors and
not otherwise "FOR" the other nominees will not be counted in determining
whether a plurality vote has been received for the election of directors. In
the absence of instructions, shares represented by a proxy will be voted FOR all
of the eight nominees. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned
proxies ("broker non-votes"), those shares will be disregarded and therefore
will have no effect on the outcome of the vote.
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Other Proposals
Shares represented by a proxy marked "ABSTAIN" on any other proposal will not be
counted in determining whether the requisite vote has been received for such
proposal. In the absence of instructions, shares represented by a proxy will be
voted FOR all of the proposals set forth in the Notice of Annual Meeting and at
the discretion of the proxy holders on any other matters that may properly come
before the Annual Meeting. In instances of broker non-votes, those shares will
not be included in the vote totals, and therefore will have no effect on the
outcome of the votes on the proposals, except with respect to the vote on
approval of the amendments to the Amended and Restated Certificate of
Incorporation where broker non-votes (and abstentions) will have the effect of a
vote against the amendments since the affirmative vote of a majority of the
issued and outstanding shares is required for approval of those proposals.
Voting by Proxy
Stockholders of record (that is, stockholders who hold their shares in their own
name) can vote any one of three ways:
(1) By Mail: Sign, date and return your proxy card in the enclosed
postage-paid envelope. If you sign and return your proxy card but do
not give voting instructions, the shares represented by that proxy
will be voted as recommended by the Board of Directors.
(2) By Telephone: Call the toll-free number on your proxy card to vote by
phone. You will need to follow the instructions on your proxy card and
the voice prompts.
(3) By Internet: Go to the web site listed on your proxy card to vote
through the Internet. You will need to follow the instructions on your
proxy card and the web site. If you vote through the Internet, you may
incur telephone and Internet access charges.
If you vote by telephone or Internet, your electronic vote authorizes the named
proxies in the same manner as if you signed, dated and returned your proxy card.
If you vote by telephone or the Internet, you should not return your proxy card.
If your shares are held in the name of a bank, broker or other holder of record
(that is "street name"), you will receive instructions from the holder of record
that you must follow in order for your shares to be voted. Telephone and
Internet voting also will be offered to stockholders owning shares through most
banks and brokers.
Changing Your Vote
You may change your vote at any time before the proxy is exercised. If you
voted by mail, you may revoke your proxy at any time before it is voted by
executing and delivering a timely and valid later-dated proxy, by voting by
ballot at the meeting or by giving written notice to the
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Secretary of the Company. If you voted by telephone or the Internet you may also
change your vote with a timely and valid later telephone or Internet vote, as
the case may be. Attendance at the meeting will not have the effect of revoking
a proxy unless you give proper written notice of revocation to the Secretary
before the proxy is exercised or you vote by written ballot at the meeting.
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OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table sets forth, as of March 1, 2000, information with respect to
the beneficial ownership of the Common Stock by (i) each person known by the
Company to own beneficially five percent or more of the outstanding Common
Stock, together with their respective addresses, (ii) each director and nominee
for election as a director, (iii) each executive officer named in the Summary
Compensation Table under "Executive Compensation - Compensation Summary"
appearing later in this Proxy Statement and (iv) all executive officers and
directors as a group:
<TABLE>
<CAPTION>
Name Shares Beneficially Owned Percent of Outstanding
---- ------------------------- ----------------------
<S> <C> <C>
Richard L. Dunning 803,595 (1) 1.1%
L. William McIntosh 387,500 (2) *
David A. Jackson, Ph.D. 644,217 (3)(4) *
William A. Wong, Ph.D. 144,249 (3)(5) *
Michael J. Griffith, Ph.D. 212,500 (6) *
Dennis E. Van Epps, Ph.D. 124,000 (7) *
Donald G. Drapkin 750,000 (8) 1.0%
Eric A. Rose, M.D. 1,022,400 (9) 1.4%
Victor W. Schmitt -0- (10) -0-
Richard L. Casey -0- -0-
Joseph A. Mollica, Ph.D. -0- -0-
C. Richard Piazza -0- -0-
Paramount Capital Asset
Management, Inc. 4,959,297 (11) 6.8%
787 Seventh Avenue, 48/th/ Floor,
New York, New York 10019
Lindsay Rosenwald, M.D. 5,906,953 (12) 8.1%
787 Seventh Avenue, 48/th/ Floor,
New York, New York 10019
Baxter Healthcare Corporation 46,290,181 (13) 44.1%
One Baxter Parkway, Deerfield,
Illinois 60015
John Hancock Financial Services, 13,571,428 (14) 15.7%
Inc.
P.O. Box 111, Boston,
Massachusetts 02117
Metropolitan Life Insurance Company 6,168,831 (15) 7.8%
One Madison Avenue, New York,
New York 10010
All directors and executive 4,297,061 (16) 5.6%
officers as a group (16 persons)
- ------------------------------------
</TABLE>
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* Less than one percent of the 72,725,674 shares of Common Stock outstanding on
March 1, 2000.
(1) Includes options to purchase 800,000 shares which are exercisable as of
March 1, 2000 or will become exercisable by May 1, 2000, 2,095 shares owned
by a daughter of Mr. Dunning, and 500 shares owned by each of Mr. Dunning's
spouse, son, and another daughter. Mr. Dunning disclaims beneficial
ownership of the shares held by his spouse, son and daughters.
(2) Includes options to purchase 367,500 shares which are exercisable as of
March 1, 2000 or will become exercisable by May 1, 2000.
(3) Includes shares held in the Company's 401(k) retirement plan for the
benefit of the officer.
(4) Includes options to purchase 635,000 shares which are exercisable as of
March 1, 2000 or will become exercisable by May 1, 2000.
(5) Includes options to purchase 142,500 shares which are exercisable as of
March 1, 2000 or will become exercisable by May 1, 2000.
(6) Includes options to purchase 112,500 shares which are exercisable as of
March 1, 2000 or will become exercisable by May 1, 2000.
(7) Includes options to purchase 112,500 shares which are exercisable as of
March 1, 2000 or will become exercisable by May 1, 2000, 9,000 shares owned
by Dr. Van Epps and 2,500 shares held in trust for Dr. Van Epps' son. Dr.
Van Epps disclaims beneficial ownership of the shares held in trust for his
son.
(8) Reflects options to purchase 750,000 shares which are exercisable as of
March 1, 2000 or will become exercisable by May 1, 2000.
(9) Includes options to purchase 750,000 shares which are exercisable as of
March 1, 2000 or will become exercisable by May 1, 2000.
(10) Mr. Schmitt disclaims beneficial ownership of any securities of the Company
beneficially owned by Baxter Healthcare Corporation.
(11) As of February 9, 2000 as reported in Amended Schedule 13G.
(12) As of February 9, 2000 as reported in Amended Schedule 13G. Includes
4,959,297 shares of Common Stock beneficially owned by Paramount Capital
Asset Management of which Dr. Rosenwald is Chairman and sole shareholder.
Dr. Rosenwald disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest, if any.
(13) As of December 17, 1999 as reported in Amended Schedule 13D. Includes
14,000,000 shares of Common Stock owned by Baxter Healthcare Corporation,
27,090,181 shares of Common Stock issuable upon conversion of the 74,498
shares of Series A Preferred Stock owned by Baxter, and 5,200,000 shares of
Common Stock issuable upon exercise of a warrant owned by Baxter.
(14) As of November 24, 1999 as reported in Schedule 13G. Includes 12,000,000
shares of Common Stock which may be issued upon conversion of 33,000 shares
of Series B Preferred Stock and 1,571,428 shares of Common Stock issuable
upon exercise of Class B Warrants. Of the 12,000,000 shares, 10,909,091
are owned by John Hancock Mutual Life Insurance Company ("JHMLICO"),
727,273 shares are owned by JHMILCO's direct wholly-owned subsidiary John
Hancock Variable Life Insurance Company ("JHVLICO"), and 363,636 shares are
owned by JHVLICO's direct wholly-owned
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subsidiary Investors Partner Life Insurance Company ("Partners"). Of the
1,571,428 shares of Common Stock issuable upon exercise of Class B
Warrants, 1,428,571 are deemed beneficially owned by JHMLICO, 95,238 shares
are deemed beneficially owned by JHVLICO and 47,619 shares are deemed
beneficially owned by Partners.
(15) As of December 31, 1999 as reported in Schedule 13G. Includes 5,454,545
shares of Common Stock issuable upon conversion of 15,000 shares of Series
B Preferred Stock and 714,286 shares of Common Stock issuable upon exercise
of Class B Warrants.
(16) Includes options to purchase 3,865,000 shares of Common Stock which are
exercisable as of March 1, 2000 or will become exercisable as of May 1,
2000.
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PROPOSAL 1
ELECTION OF DIRECTORS
Board of Directors of the Company
The Bylaws of the Company provide that the number of directors shall be not less
than three nor more than fifteen. The Board of Directors has fixed the current
size of the Board at eight. Effective November 9, 1999, C. Richard Piazza,
Joseph A. Mollica, Ph.D., and Richard L. Casey were elected as directors by the
Board of Directors. Effective March 16, 2000, L. William McIntosh was elected as
a director by the Board of Directors. There are no vacancies on the Board.
At the Annual Meeting, an eight person Board of Directors is to be elected, to
hold office until the next Annual Meeting of Stockholders and until their
successors are duly elected and qualified. Unless otherwise specifically
directed by stockholders executing proxies, it is intended that all proxies in
the accompanying form received in time for the Annual Meeting will be voted FOR
the election of the eight nominees named below, all of whom are current
directors of the Company.
In the event any nominee should become unavailable for election for any
presently unforeseen reason, it is intended that the proxies will be voted FOR
such substitute nominee as may be designated by the present Board of Directors.
The Company, current directors Richard L. Dunning, Donald G. Drapkin, and Eric
A. Rose, M.D., now former directors Lindsay A. Rosenwald, M.D. and Lawrence D.
Fink, Paramount Capital Asset Management Inc. and Baxter Healthcare Corporation
("Baxter") are parties to a Voting Agreement dated December 17, 1997 (the
"Voting Agreement"), pursuant to which all parties agreed to vote all of their
Common Stock in favor of one Baxter-nominated director. Victor W. Schmitt has
been elected a director pursuant thereto. In addition, Baxter has agreed to
vote all of its Common Stock in favor of the nominees for director recommended
by the majority of the Company's Board of Directors. The Voting Agreement will
remain in effect as long as Baxter continues to own at least 3% of the Common
Stock. Baxter's obligations will terminate if the "threshold" as described in a
Side Letter Agreement dated November 24, 1999 between the parties is met. See
"Certain Transactions."
Biographical Information
Each nominee's name, age, office with the Company, if any, the year first
elected as a director and certain biographical information are set forth below:
Richard L. Dunning, 54, was elected as Chairman of the Board of Directors
in May 1999 and has been Chief Executive Officer of the Company since April
1996. Prior to joining the Company, Mr. Dunning served as Executive Vice
President and Chief Financial Officer of the
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DuPont Merck Pharmaceutical Company (now DuPont Pharmaceuticals Company) from
1991 to 1995. Mr. Dunning also serves as a director of Epoch Pharmaceuticals,
Inc. and Endorex Corp.
Donald G. Drapkin, 52, served as Chairman of the Board of Directors from
March 1996 to May 1999 and has served as a director of the Company since
November 17, 1995. Mr. Drapkin has been a director and Vice Chairman of
MacAndrews & Forbes Holdings Inc. and various of its affiliates since 1987.
Prior to joining MacAndrews & Forbes, Mr. Drapkin was a partner in the law firm
of Skadden, Arps, Slate, Meagher & Flom in New York for more than five years.
Mr. Drapkin also serves as a director of Algos Pharmaceutical Corporation,
Anthracite Capital, Inc., BlackRock Asset Investors, Genta Incorporated, The
Molson Companies Limited, Playboy Enterprises, Inc., Revlon Consumer Products
Corporation, Revlon, Inc., The Warnaco Group, Inc. and Weider Nutrition
International, Inc. (On December 27, 1996, Marvel Entertainment Group, Inc.,
Marvel Holdings Inc., Marvel (Parent) Holdings Inc. and Marvel III Holdings
Inc., each of which Mr. Drapkin was a director of at such time, filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.)
Eric A. Rose, M.D., 49, was elected a director of the Company in November
1995. Dr. Rose is Surgeon-in-Chief at Columbia Presbyterian Medical Center in
New York, a position he has held since August 1994. Dr. Rose is a past
president of the International Society for Heart and Lung Transplantation.
Victor W. Schmitt, 51, was elected a director of the Company in December
1997 pursuant to the Voting Agreement. Mr. Schmitt has been President, Venture
Management, Baxter Healthcare Corporation since 1994. Prior to this position,
he held the operating position of President, Baxter Biotech Europe. Mr. Schmitt
joined Baxter after a 16-year career with the American Red Cross Blood Services,
where he held positions in marketing and operations. He also serves as a
director of a number of development-stage biotech companies.
C. Richard Piazza, 52, was elected a director of the Company in November
1999. Mr. Piazza has been Chairman and CEO of PharmaPrint Inc., a dietary
supplements, functional foods and natural pharmaceuticals company, since October
1999. Prior to joining PharmaPrint, Mr. Piazza was CEO of VitaGen Inc., a
biotechnology company specializing in combating liver disease, from 1994 to
1999. Previous management positions include that of President and CEO of
Everest and Jennings International Ltd., President and CEO of Marquest Medical
Products, President and CEO of Smith and Nephew Solopak, President of
Biolectron, Inc., President and CEO of Radius Health System Services & Supplies,
as well as management roles at Stimetics and Ohmeda.
Joseph A. Mollica, Ph.D., 59, was elected a director of the Company in
November 1999. Dr. Mollica has been Chairman and CEO of Pharmacopeia, a leader
in the field of drug discovery using small molecule combinatorial chemistry,
since 1994. Prior to joining Pharmacopeia, Dr. Mollica served as President and
CEO of the DuPont Merck Pharmaceutical Co. and Vice President of DuPont
Pharmaceuticals. He joined DuPont Medical Products as Head of Pharmaceutical
and Biotechnology after twenty years as a scientist and executive at Ciba-Geigy.
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Richard L. Casey, 53, was elected a director of the Company in November
1999. Mr. Casey has served since January 2000 as Chairman and CEO of CellGate,
Inc., a drug discovery company. Mr. Casey served as Chairman and CEO of Scios
Inc. (formerly California Biotechnology, Inc.), a biopharmaceutical company,
from 1987 until his retirement in 1998. Prior to joining Scios, Mr. Casey was
Executive Vice President at Alza Corporation and President of the Alza
Pharmaceuticals Division. Previous management positions include that of General
Manager of Syntex Medical Diagnostics, Vice President of Sales at Syntex
Laboratories, and a variety of sales, strategic planning and market analysis
positions at Syntex and Eli Lilly and Company.
L. William McIntosh, 54, was elected a director of the Company in March
2000 and has served as President and Chief Operating Officer since March 1,
1998. From May 1997 through February 1998, he served as Senior Vice President,
Business Development and Finance and Chief Financial Officer of the Company.
Prior to joining the Company, Mr. McIntosh served as Senior Vice President,
Business Development and Commercial Operations for Zynaxis Inc., a biotechnology
company with both drug delivery and diagnostic technologies from 1993. Mr.
McIntosh has served in senior management positions at SmithKline Beecham (as a
full-time consultant), Boehringer Mannheim Pharmaceuticals Corporation, Medco
Containment Services, Inc., and Merck and Co., Inc. He currently serves on the
Board of Directors of VIRxSYS Corporation.
Meetings and Committees
During 1999, there were six meetings of the Board of Directors. Additionally,
the Board took action by unanimous written consent without a meeting on two
occasions in 1999. During 1999, each director attended at least 75% of the
total number of the meetings of the Board and of the committees of the Board on
which such member serves.
The Compensation Committee, which also acts as the Stock Option Committee,
consisted of Lindsay A. Rosenwald, M.D., until his term as a director expired on
May 25, 1999, and Mr. Drapkin, Mr. Dunning and Dr. Rose until November 9, 1999.
The Compensation Committee met one time and took action by unanimous written
consent without a meeting on one occasion during 1999. On November 9, 1999, Mr.
Casey and Dr. Mollica, new directors on the Board, joined the Compensation
Committee and the prior members stepped down. The Compensation Committee
approves grants of options pursuant to the Company's stock option plans and
recommends compensation for executive officers.
The Audit Committee, which consisted of Mr. Dunning and Dr. Rose until November
9, 1999, did not meet formally as a committee during 1999. On November 9, 1999,
Messrs. Piazza and Casey joined the Audit Committee and Mr. Dunning stepped
down. The Audit Committee reviews the audit and financial procedures of the
Company, recommends any changes with respect thereto to the Board of Directors,
and also recommends to the Board the selection of independent auditors. In March
2000, the Board of Directors adopted an Audit Committee Charter.
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The Company does not have a standing nominating committee and nominees for the
Board are determined by the entire Board.
Director Compensation
Effective November 9, 1999, directors of the Company who are not executive
officers (except Mr. Schmitt, the Baxter representative) are entitled to receive
a fee of $10,000 per year for serving on the Board of Directors, $2,000 per year
for serving as a member of the Compensation or Audit Committees (except the
Audit Committee Chairman, who is entitled to receive a fee of $3,500 per year in
lieu of the committee member fee), and $1,500 for each Board of Directors
meeting attended. In addition, on the date of their initial election to the
Board, directors who are not executive officers are entitled to receive a grant
of options under the Company's 1997 Incentive and Non-Incentive Stock Option
Plan (the "1997 Plan") to purchase 50,000 shares of Common Stock at a fair
market value exercise price vesting at an annual rate of 25%. Accordingly,
Messrs. Casey and Piazza and Dr. Mollica each received a grant of options at an
exercise price of $1.375 upon their election in November 1999. It is anticipated
that directors who are not executive officers or the Baxter representative will
receive an annual grant, on the anniversary of their election, of options to
purchase 20,000 shares of Common Stock at the fair market value on that day and
with comparable vesting terms to those described above. Also, on November 9,
1999 Victor W. Schmitt received a grant of options under the 1997 Plan to
purchase 75,000 shares of Common Stock at a fair market value exercise price of
$1.375 with 25,000 shares vesting on May 9, 2000 and 50,000 shares vesting at an
annual rate of 25%.
In November 1999, the Company entered into Indemnification Agreements with each
member of its Board of Directors indemnifying them to the fullest extent allowed
under applicable law.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE EIGHT NOMINEES NAMED ABOVE
11
<PAGE>
EXECUTIVE COMPENSATION AND RELATED MATTERS
Compensation Summary
The following table sets forth a summary of the compensation for each of the
three years ended December 31, 1999 earned by the Company's Chief Executive
Officer and the other five highest compensated executive officers during 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------
Other
Annual Securities All Other
Name and Fiscal Bonus Comp. Underlying Compensation
Principal Position Year Salary ($) ($)(1) ($)(2) Options (#)(3) ($)(4)
------------------ ---- ---------- ------ ------ -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Dunning 1999 $225,000 $ 25,000 $ 6,000 800,000 (5) $3,000
Chairman and Chief 1998 $250,000 -- $ 6,000 200,000 $2,950
Executive Officer 1997 $200,000 $120,000 $ 6,000 -- $3,090
L. William McIntosh 1999 $233,000 $ 68,000 $57,900 435,000 (6)(7) $4,800
President and Chief 1998 $216,000 $ 11,000 $ 8,400 90,000 $2,200
Operating Officer 1997 $ 99,000 $115,000 -- 400,000 (8) --
David A. Jackson, 1999 $200,000 $ 47,500 -- 500,000 (9) $5,000
Ph.D. (10) 1998 $200,000 -- -- 135,000 $5,000
Exec. VP, Corporate 1997 $175,000 $100,000 -- -- $3,950
Development
William A. Wong, 1999 $171,000 $ 12,000 -- -- $4,825
Ph.D. 1998 $131,000 $ 35,500 -- 285,000 $2,000
Exec. VP, Business 1997 -- -- -- -- --
Development
Michael J. Griffith, 1999 $170,000 $ 12,000 -- -- $5,000
Ph.D. (11) 1998 $159,000 $ 6,500 -- 225,000 $4,890
VP, Clinical and 1997 -- -- -- -- --
Regulatory Affairs
Dennis E. Van Epps, 1999 $165,000 $ 12,300 $ 3,375 -- $3,675
Ph.D. 1998 $151,000 $ 6,200 $ 2,000 225,000 $3,790
VP, Research and 1997 -- -- -- -- --
Development
</TABLE>
______________________
(1) Bonus amounts are shown for the year in which earned and except as noted
below were paid in the following year. Signing bonuses of $40,000 to Mr.
McIntosh in 1997 and
12
<PAGE>
$30,000 to Dr. Wong in 1998 and special bonuses paid in 1999 of $43,000 to
Mr. McIntosh and $35,000 to Dr. Jackson are reflected in the year paid.
(2) Other Annual Compensation includes $6,000 reimbursement of personal medical
and health care insurance paid to Mr. Dunning in each fiscal year, $2,000
paid to Dr. Van Epps in 1999 and 1998 for patent awards and reimbursement
of relocation expenses paid to Mr. McIntosh and Dr. Van Epps.
(3) Number of shares of Common Stock purchasable. See Option Grant Table below
for exercise prices and expiration dates.
(4) Includes Company's matching contribution to the named executive's account
in the Company's 401(k) retirement plan.
(5) Reflects options to purchase 600,000 shares that were repriced and options
to purchase 200,000 shares that were cancelled in connection with a new
grant of 200,000 shares. See "Option Grants in the Fiscal Year Ended
December 31, 1999," "Ten Year Option Repricings," and "Report of the
Compensation Committee and Board of Directors on Repricing of Options."
(6) Includes options to purchase 375,000 shares that had previously represented
options, granted in May 1998, to purchase 125,000 shares in Nexell of
California, Inc., the Company's principal operating subsidiary ("NCI") and
which automatically converted to options in the Company upon NCI becoming a
wholly owned subsidiary in May 1999.
(7) Includes options to purchase 60,000 shares under a contract entered into in
1998, but which options were granted in 1999.
(8) Options to purchase 190,000 of such shares were cancelled in connection
with the executive's appointment as President and Chief Executive Officer
of NCI. See "Ten Year Option Repricings."
(9) Reflects options to purchase 366,667 shares that were repriced and options
to purchase 133,333 shares that were cancelled in connection with a new
grant of 133,333 shares. See "Option Grants in the Fiscal Year Ended
December 31, 1999," "Ten Year Option Repricings," and "Report of the
Compensation Committee and Board of Directors on Repricing of Options."
(10) Effective January 28, 2000, Dr. Jackson resigned as an officer of the
Company and remained as an employee through March 2000.
(11) Dr. Griffith has resigned from the Company effective April 28, 2000.
Employment Agreements
Mr. Dunning serves as Chairman and Chief Executive Officer of the Company under
an amended and restated employment agreement entered into as of April 15, 1999,
which provides for a base annual salary of $200,000 (effective July 1, 1999,
reduced from $250,000) and an annual cash bonus targeted to be at least 33% of
base compensation assuming satisfactory performance as determined by the Board
of Directors. Mr. Dunning is entitled to four weeks' vacation and to
participate in the Company's employee benefit programs. Mr. Dunning's
employment may be terminated for cause by the Company, or without cause by
either party upon 60 days' notice. In the event Mr. Dunning's employment is
terminated by the Company without cause, or he terminates his employment
following certain actions by the Company (such as a material reduction in Mr.
Dunning's duties or a material interference with the exercise of his authority
by the Board of Directors), Mr. Dunning would be entitled to a severance payment
13
<PAGE>
equal to six months of his base salary, payable in monthly installments. The
agreement contains non-competition and confidentiality provisions, and provides
that the Company may obtain "key man" life insurance on the life of Mr. Dunning
for the Company's benefit. Pursuant to the agreement, certain of Mr. Dunning's
options to purchase Common Stock were repriced. See "Option Grants in the
Fiscal Year Ended December 31, 1999," "Ten Year Option Repricings," and "Report
of the Compensation Committee and Board of Directors on Repricing of Options."
Mr. McIntosh serves as President and Chief Executive Officer of NCI under an
employment agreement that provides for a base annual salary of $234,000, and an
annual cash bonus based on performance criteria, targeted to be at least 25% of
Mr. McIntosh's base compensation. Mr. McIntosh is entitled to four weeks'
vacation and to participate in NCI's employment benefit programs. Mr. McIntosh's
employment contract may be terminated by NCI for cause, or without cause by
either party upon 60 days' notice. In the event Mr. McIntosh's employment is
terminated by NCI without cause, or in the event Mr. McIntosh terminates his
employment following certain actions by NCI (such as material reduction in his
duties), Mr. McIntosh would be entitled to a severance payment equal to twelve
months of his base salary, payable in monthly installments. The agreement
contains non-competition and confidentiality provisions, and provides that NCI
may obtain "key man" life insurance on the life of Mr. McIntosh for NCI's
benefit.
Dr. Jackson served as Executive Vice President - Research & Development of the
Company until January 28, 2000 under an amended and restated employment
agreement which provided for a base annual salary of $200,000 and an annual cash
bonus targeted to be at least 33% of base compensation assuming satisfactory
performance as determined by the Board of Directors. Dr. Jackson was entitled to
four weeks' vacation and to participate in the Company's employee benefit
programs. Dr. Jackson's employment could be terminated for cause by the Company,
or without cause upon 90 days' notice by the Company, or upon 90 days' notice by
Dr. Jackson prior to January 1, 2000 or at any time by him after January 1,
2000. In the event Dr. Jackson's employment was terminated by the Company
without cause, or in the event Dr. Jackson terminated his employment following
certain actions by the Company (such as a material reduction in his duties or
his failure to relocate to the Company's Irvine offices within 90 days' of the
Company's written request that he do so given after January 1, 2000), Dr.
Jackson would be entitled to a severance payment equal to three months of his
base salary, payable in monthly installments. The agreement contains non-
competition and confidentiality provisions, and provides that the Company may
obtain "key man" life insurance on the life of Dr. Jackson for the Company's
benefit. Pursuant to the agreement, certain of Dr. Jackson's options to purchase
Common Stock were repriced. See "Option Grants in the Fiscal Year Ended December
31, 1999," "Ten Year Option Repricings," and "Report of the Compensation
Committee and Board of Directors on Repricing of Options." In December 1999, the
Company provided the 90-day notice of termination to Dr. Jackson and in
accordance with his employment agreement he is entitled to receive the severance
benefits described above.
The following executives do not have employment agreements with the Company. Dr.
Wong serves as Executive Vice President, Business Development for a base annual
salary of $170,000. Dr. Griffith will serve as Vice President, Clinical and
Regulatory Affairs for a base annual salary
14
<PAGE>
of $168,000 until his resignation which will be effective April 28, 2000. Dr.
Van Epps serves as Vice President, Research and Development for a base annual
salary of $170,500.
15
<PAGE>
Stock Options
The following table sets forth information with respect to grants of options
("Options") to purchase Common Stock under the Company's stock option plans to
the executive officers named in the Summary Compensation Table during the fiscal
year ended December 31, 1999.
Option Grants in the Fiscal Year Ended December 31, 1999
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term (10)
-----------------------------------------------------------------------------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Granted Employees in Price Expiration
Name (#)(8) Fiscal Year ($/Sh)(9) Date 5% ($) 10% ($)
---- --------------- ----------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Richard L. 200,000(1)(4) 6.2% $1.50 04/15/09 $188,668 $478,123
Dunning 600,000(2)(4) 18.8% $1.50 03/28/06 $366,390 $853,845
L. William 60,000(3)(5) 1.9% $0.001 01/01/08 $193,360 $293,929
McIntosh 375,000(6) 11.7% $1.67 01/01/08 $345,269 $850,415
David A. 133,333(1)(7) 4.2% $1.50 04/15/09 $125,779 $318,748
Jackson, Ph.D. 366,667(2)(7) 11.5% $1.50 08/26/06 $223,905 $521,795
William A. -- -- -- -- -- --
Wong, Ph.D.
Michael J. -- -- -- -- -- --
Griffith, Ph.D.
Dennis E. Van -- -- -- -- -- --
Epps, Ph.D.
</TABLE>
(1) Mr. Dunning and Dr. Jackson were granted 200,000 Options and 133,333
Options respectively; concurrently, Options to purchase 200,000 shares and
133,333 shares respectively were cancelled. See "Ten Year Option
Repricings," and "Report of the Compensation Committee and Board of
Directors on Repricing of Options."
(2) 600,000 and 366,667 of the Options granted to Mr. Dunning and Dr. Jackson
respectively represent amended Options. See "Ten Year Option Repricings,"
and "Report of the Compensation Committee and Board of Directors on
Repricing of Options."
(3) The 60,000 Options granted to Mr. McIntosh were issuable under a contract
entered into in 1998, but which options were granted in 1999.
(4) 200,000 of the Options granted to Mr. Dunning vest in equal installments of
33.3% each on October 15, 1999, June 30, 2000 and January 31, 2001, subject
to acceleration of exercisability upon the occurrence of certain events.
The remaining 600,000 of the
16
<PAGE>
Options granted to Mr. Dunning involved the repricing of existing Options
which provided for vesting in three annual installments. The general
vesting terms were not amended at the time of repricing.
(5) The Options granted to Mr. McIntosh are exercisable as to 25% of the
underlying shares on the date of grant, and the remaining balance vests in
annual increments of 15,000 shares on January 1, 2000, January 1, 2001 and
January 1, 2002, subject to the acceleration of exercisability upon the
occurrence of certain events.
(6) These options had previously represented options, granted in May 1998, to
purchase 125,000 shares in NCI and which automatically converted to options
in the Company upon NCI becoming a wholly owned subsidiary in May 1999.
(7) The Options granted to Dr. Jackson were to vest in equal installments of
50% each on October 15, 1999 and April 15, 2000, subject to the
acceleration of exercisability upon the occurrence of certain events. The
remaining 366,667 of the Options granted to Dr. Jackson involved the
repricing of existing Options which provided for vesting in five annual
installments. The general vesting terms were not amended at the time of
repricing. Upon his termination, Dr. Jackson's outstanding unvested
Options vested and the requirement to exercise within three months was
waived.
(8) The Options granted generally shall terminate ten years from the date of
grant unless (i) termination of employment was by reason of death, in which
case the Options shall be exercisable for one year after the date of
termination of employment or (ii) such termination was for cause, in which
case the Options shall terminate on the date of termination of employment.
The Options are non-transferable.
(9) All Options were granted at or above market value on the date of grant,
except for the 60,000 Options granted to Mr. McIntosh. The exercise price
may be paid by cash, by delivery of already owned shares or by offset of
the underlying shares, subject to certain conditions.
(10) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock, overall stock conditions, as well as the
optionholders' continued employment through the vesting period. The
amounts reflected in this table may not necessarily be achieved.
17
<PAGE>
The following table set forth certain information concerning Options exercised
during 1999, and the number of unexercised Options as of December 31, 1999 held
by the individuals named in the Summary Compensation Table.
Aggregated Options Exercises in Fiscal 1999 and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1999 (#) December 31, 1999 ($)(1)
--------------------- ------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. -- -- 733,333 266,667 -- --
Dunning
L. William -- -- 236,250 498,750 $18,735 $56,250
McIntosh
David A. -- -- 320,417 314,583 -- --
Jackson,
Ph.D.
William A. -- -- 71,250 213,750 -- --
Wong,
Ph.D.
Michael J. -- -- 56,250 168,750 -- --
Griffith,
Ph.D.
Dennis E. -- -- 56,250 168,750 -- --
Van Epps,
Ph.D.
</TABLE>
_______________
(1) Based upon the $1.25 closing sale price of the Common Stock on The Nasdaq
Stock Market on December 31, 1999.
18
<PAGE>
Option Repricing
The following table provides information regarding all repricings of Options to
purchase Common Stock held by any executive officer of the Company during the
prior ten years.
Ten Year Option Repricings
<TABLE>
<CAPTION>
Length of
Number of Original Option
Securities Term
Underlying Market Price of Exercise Price Remaining at
Options Stock at Time at Time of New Date of
Repriced or of Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment (1)
---- ---- ------------ ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. 4/15/99 200,000 $1.25 $2.56 $1.50 82 months
Dunning, 4/15/99 600,000 $1.25 $2.56 $1.50 82 months
CEO
L. William 5/28/98 60,000 $1.34 $2.47 $.001 108 months
McIntosh, 5/28/98 102,000 $1.34 $2.47 $1.67 108 months
President 5/28/98 28,000 $1.34 $1.91 $1.67 108 months
and CEO
of NCI
David A. 4/15/99 133,333 $1.25 $3.31 $1.50 87 months
Jackson, 4/15/99 366,667 $1.25 $3.31 $1.50 87 months
Ph.D.,
Exec. VP,
Corp.Dev.
</TABLE>
____________________
(1) See "Report of the Compensation Committee and Board of Directors on
Repricing of Options" and "Option Grants in the Fiscal Year Ended December
31, 1999."
Report of the Compensation Committee and Board of Directors on Repricing of
Options
During April and May 1999, the Compensation Committee and Board of Directors
considered the fact that a decline in the price of the Common Stock of the
Company had resulted in a substantial number of stock options granted pursuant
to the Company's stock option plans to Mr. Dunning and Dr. Jackson, two of the
Company's executive officers, having exercise prices well above the recent
trading prices for the Common Stock. The Committee and the Board believed that
the Company's total compensation package for such officers, which included
substantial options with exercise prices well above then current trading prices,
was less attractive than compensation offered by other biotechnology companies
which the Company competes for executive talent.
19
<PAGE>
The Committee and the Board believed that (i) the Company's success in the
future will depend in large part on its ability to retain a number of its highly
skilled personnel, (ii) that competition for such personnel is intense, (iii)
that the loss of key officers and employees could have significant adverse
impact on the Company's business, and (iv) that it is important and cost-
effective to provide equity incentives to employees and officers of the Company
to improve the Company's performance and the value of the Company for its
stockholders. The Committee and the Board also noted that in conjunction with
the option adjustments Mr. Dunning was agreeing to a reduction in his annual
base salary from $250,000 to $200,000 effective July 1, 1999 and was foregoing a
bonus in 1999 with respect to 1998, and that Dr. Jackson was agreeing to a
reduction in potential severance benefits under his employment agreement from
twelve months to three months. Considering all of these factors, the Committee
and the Board determined it to be in the best interest of the Company and its
stockholders to restore the incentive for such officers to remain as employees
of the Company and to exert their maximum efforts on behalf of the Company by
repricing certain outstanding options under the stock option plan to an exercise
price that, though in each case still above the then current trading price, was
considerably closer to such current trading price. See "Ten Year Option
Repricings" table for further information concerning such repricing and the
repricing to one other officer.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 - Accounting for Certain Transactions Involving Stock Compensation. This
Interpretation requires the Company to account for all the repriced or amended
stock options of Mr. Dunning and Dr. Jackson as variable awards. This accounting
treatment requires the Company to recognize compensation expense on a periodic
basis prospectively from July 1, 2000, the effective date of the Interpretation.
The amount of compensation expense recognized, if any, will be dependent on the
market price of the Common Stock at the end of each reporting period.
During the Committee's and Board's consideration, Mr. Dunning did not
participate in discussions regarding his options.
The Compensation Committee in April 1999 The Board of Directors in May 1999
Donald G. Drapkin Donald G. Drapkin
Richard L. Dunning Richard L. Dunning
Lindsay A. Rosenwald, M.D. Victor W. Schmitt
Eric A. Rose, M.D. Eric A. Rose, M.D.
Stock Option Plans
Beginning in July 1990, the Company has maintained the following stock option
plans: 1990 Incentive and Non-Incentive Stock Option Plan (the "1990 Plan"),
1997 Incentive and Non-Incentive Stock Option Plan (the "1997 Plan"), and 1998
Non-Incentive Stock Option Plan (the "1998 Plan"), (collectively the "Stock
Option Plans") and 1995 Director Stock Option Plan (the "1995 Director Plan").
20
<PAGE>
The Stock Option Plans are administered by the Stock Option Committee (the
"Option Committee") of the Board of Directors. The Option Committee is
currently comprised of Mr. Casey and Dr. Mollica.
The purpose of the Stock Option Plans is to further the growth and development
of the Company by encouraging selected employees, directors and other persons
who contribute and are expected to contribute materially to the Company's
success to obtain a proprietary interest in the Company through the ownership of
its Common Stock, thereby providing such persons with an added incentive to
promote the best interests of the Company and affording the Company a means of
attracting persons of outstanding ability to its service. Approximately 150
employees of the Company and an indeterminate number of consultants and others
are eligible to participate in the Stock Option Plans.
1990 Plan
The 1990 Plan was adopted in July 1990 and will expire in July 2000, unless
earlier terminated by the Board of Directors. Under the 1990 Plan, 2,400,000
shares of Common Stock are reserved for issuance upon exercise of either
incentive or non-incentive options, which may be granted from time to time by
the Option Committee to employees, directors, consultants, agents, independent
contractors, and others who contribute to the Company's success. The terms of
the options may be up to ten years and are exercisable as determined by the
Option Committee, provided that the option generally does not become exercisable
before six months from the date of grant. The grant prices must be no less than
50% and 100% of the fair market value for non-incentive and incentive options,
respectively, and are generally granted at the market close price on the day
prior to the grant. The options accelerate upon a change in control as defined
in the 1990 Plan. At March 1, 2000, there were 3,000 options available for
grant under the 1990 Plan. Generally, options vest 25% per annum on the
anniversary date of grant.
1997 Plan
The 1997 Plan was adopted in February 1997 and will expire in February 2007,
unless earlier terminated by the Board of Directors. Under the 1997 Plan, an
aggregate of 3,000,000 shares are reserved for issuance upon exercise of options
thereunder. The Board of Directors is recommending that the stockholders
approve an amendment to the 1997 Plan to increase the number of shares reserved
thereunder from 3,000,000 to 5,250,000. For a description of this proposal and
for further information regarding the 1997 Plan, see Proposal 4.
1998 Plan
The 1998 Plan was adopted in January 1998 and will expire in December 2007,
unless earlier terminated by the Board of Directors. Under the terms of the
1998 Plan, up to an aggregate of (i) 1,000,000 shares of NCI common stock and
(ii) 3,000,000 shares of Common Stock of the Company were reserved for issuance
upon the exercise of non-incentive options which may be granted from time to
time by the Option Committee of the Board of Directors to employees, directors,
consultants, agents, independent contractors and others who contribute to the
Company's success. The terms of the options may be up to ten years and are
exercisable as
21
<PAGE>
determined by the Option Committee, provided that options do not become
exercisable before six months from the date of grant. Each grant originally
provided for an exercise price of $5.00 per share of NCI common stock
(approximately $1.67 per share of Common Stock of the Company in the event such
options became exercisable for the Company's Common Stock). As a result of NCI
becoming a wholly owned subsidiary of the Company in May 1999, all outstanding
options converted automatically to options to purchase Common Stock of the
Company. The options accelerate upon a change in control as defined in the 1998
Plan. At March 1, 2000, there were 13,599 options available for grant under the
1998 Plan. Generally, options vest at 25% per annum on the anniversary date of
the grant.
1995 Director Plan
In August 1995, the Company adopted the 1995 Director Plan authorizing the
issuance of five-year options to purchase an aggregate of 920,000 shares at an
exercise price equal to the fair market value of Common Stock at date of grant.
All of the options were granted to Directors under the 1995 Director Plan and no
further options are available for grant. As of March 1, 2000, 100,000 options
were outstanding and exercisable. The options will expire in November 2000.
401(k) Plan
Effective as of January 1, 1998, the Company adopted its 401(k) Plan (the
"Plan"), which includes a cash-or-deferred arrangement under Section 401(k) of
the Internal Revenue Code of 1986, as amended. The Plan was established to
provide retirement and other benefits to employees of the Company. Employees
qualify to participate in the Plan on the first of the month following their
date of hire. Participants may designate up to 15% of their compensation to be
contributed to the Plan on a pre-tax basis ("Employee Elective Contributions").
Participants will be 100 % vested in their Employee Elective Contributions
(including earnings) at all times.
The Company matches 50% of the first 6% of an employee's contributions to the
Plan. Participants will generally vest in the Company's contributions (including
earnings) at the rate of 33.3% on the first anniversary from date of
participation, 66.6% on the second anniversary from date of participation and
100% on the third anniversary from date of participation.
Compensation Committee Interlocks and Insider Participation
Since November 9, 1999, the members of the Compensation Committee, which also
acts as the Stock Option Committee, have been Richard L. Casey and Joseph A.
Mollica, Ph.D. Prior thereto the Committee consisted of Richard L. Dunning, the
Company's Chairman of the Board and Chief Executive Officer, Donald G. Drapkin,
Eric A. Rose, M.D. and, until May 25, 1999, Lindsay A. Rosenwald, M.D. Mr.
Casey and Dr. Mollica were granted stock options in 1999. See "Director
Compensation." Mr. Dunning entered into an amended and restated employment
agreement with the Company, including the repricing of options during 1999. See
"Employment Agreements." No member of the Compensation Committee has any
interlocking relationship with any other corporation that requires disclosure
under this heading.
22
<PAGE>
Compensation Committee Report
The Compensation Committee is responsible for setting the Company's policy with
respect to the compensation of the Company's senior executive officers,
including the Chief Executive Officer, and administering the Company's stock
option plans. The Company's policy is to establish a compensation program that
will attract, retain and motivate qualified members of senior management in a
manner that is competitive with other companies in the biotechnology industry.
The key elements in this policy are salary, stock options, and availability of a
cash bonus. As the Company has only recently emerged from the development stage,
revenues and profits have been largely inapplicable as factors in determining
compensation of the Chief Executive Officer and other executives of the Company.
Rather, the Compensation Committee in the past has looked to qualitative
factors, including the officers' efforts to build the organization, to expand
the Company's potential product line (through acquiring new technologies or
otherwise), to expand the range of applications therefor, and to intensify the
Company's research and development efforts for its potential products. Cash
bonuses were awarded by the Compensation Committee related to performance in
1999.
As noted above, the key elements of an executive's compensation consist of base
salary, a cash bonus and stock options. These items are discussed in more detail
in the following sections of this Report.
(a) Base Salary
The Company compensates its executive officers partly through salaries. As
described above, based on the factors described therein, the Compensation
Committee reviews certain officers' salaries, including Mr. Dunning's (the Chief
Executive Officer). In connection with the Company entering into an amended and
restated employment agreement with Mr. Dunning in April 1999, his base salary
was reduced from $250,000 to $200,000 effective July 1, 1999, he agreed to
forego a bonus in 1999 relating to 1998, and his options were repriced. See
"Report of the Compensation Committee and Board of Directors on Repricing of
Options."
(b) Bonus
The Company's senior executives and employees are eligible to receive a cash
bonus. Subject to negotiated and targeted contractual bonus provisions contained
in certain executives' employment agreements, the amount of bonuses and their
distribution is discretionary, and the general practice is that such bonuses are
recommended by senior management and reviewed by the Compensation Committee and
the Board of Directors. For fiscal 1999, six of the executive officers named in
the Summary Compensation Table received a bonus. Mr. Dunning received a bonus of
$25,000 in light of certain milestones reached by the Company in 1999, including
the launch of the Isolex system in the U.S., the restructuring of the Company's
relationship with Baxter and the November 1999 $63 million financing.
(c) Stock Based Compensation
23
<PAGE>
Under the Company's stock option plans which have been approved by the
stockholders, stock based compensation in the form of stock options may be
granted to directors, officers, employees, and consultants of the Company. The
purpose of equity participation is to further align the interests between
executive officers and the stockholders in the Company's growth in real value
over the long term.
Stock options, which are generally exercisable for ten years from the date of
grant, generally have an exercise price equal to (or in some cases in excess of)
the closing market price (NASDAQ/National Market) of the Company's Common Stock
on the date of grant and generally vest over four years from the grant date.
This approach is designed to provide an incentive to create stockholder value
over the longer term, since the full benefit of the stock option compensation
package generally cannot be realized unless stock appreciation occurs over
several years.
The Compensation/Stock Option Committee determines the number of options to be
granted based principally upon the recommendation of senior management, whose
recommendation in turn is based on their subjective analysis of individual
performance, responsibility, the executive's other compensation (including prior
grants of options, if any) and the executive's retention value to the Company.
No specific weighting is assigned to these factors.
In 1999, certain of Mr. Dunning's options to purchase Common Stock were
repriced. Certain other executive officers, including two other executive
officers named in the Summary Compensation Table, were granted options in 1999
or had options repriced. See "Option Grants in the Fiscal Year Ended December
31, 1999," "Ten-Year Option Repricings" and "Report of the Compensation
Committee and Board of Directors on Repricing of Options."
In 1993, Congress enacted the Omnibus Reconciliation Act of 1993 (OBRA) which,
among other things, establishes certain requirements in order for compensation
exceeding $1,000,000 earned by certain senior executives to be deductible.
Although the Company's historical levels of executive compensation have been
substantially less than $1,000,000 per employee annually, the Board of Directors
has established certain restrictions on the granting of options under the
Company's stock option plans to assist in qualifying such compensation for an
exemption under OBRA, except that non-qualified options granted with an exercise
price less that the fair market value of the Common Stock on the date of grant
are permitted under such plans and will not qualify for such exemption. Also, in
light of the composition of the Compensation/Stock Option Committee prior to
November 1999, options granted prior thereto will not qualify for such exemption
and there can be no assurance that such exemption will be available in the
future. The Board of Directors does not believe that other components of the
Company's compensation will be likely to exceed $1,000,000 for any executive
officer in the foreseeable future and therefore concluded that no further action
with respect to qualifying such compensation for deductibility was necessary at
this time. The Board will continue to evaluate the advisability of qualifying
the deductibility of such compensation in the future.
The Compensation Committee
24
<PAGE>
Richard L. Dunning (until November 9, 1999)
Donald G. Drapkin (until November 9, 1999)
Eric A. Rose, M.D. (until November 9, 1999)
Lindsay A. Rosenwald, M.D. (until May 25, 1999)
Richard L. Casey (from November 9, 1999)
Joseph Mollica, Ph.D. (from November 9, 1999)
The above report shall not be deemed incorporated by reference into any filing
under the Securities Act of 1933 ("Securities Act") or under the Securities
Exchange Act of 1934 ("Exchange Act"), by any general statement incorporating by
reference this Proxy Statement, except to the extent the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
STOCK PRICE PERFORMANCE COMPARISON
The Stock Price Performance Graph below compares cumulative total return of the
Company's Common Stock with the cumulative total return of (i) the Index for the
NASDAQ Stock Market (U.S. Companies) (the "NASDAQ Index"); (ii) NASDAQ
Pharmaceutical Index (the "Pharmaceutical Index"); and (iii) Chase Hambrecht &
Quist Biotechnology Index (the "Biotechnology Index"). The Graph assumes $100
was invested on January 1, 1995, in (i) the Company's Common Stock, (ii) the
stocks comprising the NASDAQ Index, (iii) the stocks comprising the
Pharmaceutical Index, and (iv) the stocks comprising the Biotechnology Index,
and the reinvestment of dividends.
The Company has determined to begin using the Biotechnology Index this year
because the Company believes that it is a more appropriate reference for
purposes of assessing the Company's relative stock performance. The
Biotechnology Index, as compared to the Pharmaceutical Index, is composed of a
pool of companies including a higher proportion of emerging companies more
closely aligned with the Company's stage of overall commercial development. In
the future the Company intends to use the Biotechnology Index in lieu of the
Pharmaceutical Index.
25
<PAGE>
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG NEXELL THERAPEUTICS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE NASDAQ PHARMACEUTICAL INDEX
AND THE HAMBRECHT & QUIST BIOTECHNOLOGY INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Cumulative Total Return
--------------------------------------------------------
12/94 12/95 12/96 12/97 12/98 12/99
<S> <C> <C> <C> <C> <C> <C>
NEXELL THERAPEUTICS, INC. 100.00 300.00 900.00 516.67 291.65 333.33
NASDAQ STOCK MARKET (U.S.) 100.00 141.33 173.89 213.07 300.25 542.43
NASDAQ PHARMACEUTICAL 100.00 183.41 183.98 190.02 241.74 449.78
HAMBRECHT & QUIST BIOTECHNOLOGY 100.00 170.11 156.95 158.87 241.93 381.25
</TABLE>
* $100 INVESTED ON 12/31/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
The graph above shall not be deemed incorporated by reference into any filing
under the Securities Act or under the Exchange Act, by any general statement
incorporating by reference this Proxy Statement, except to the extent the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
CERTAIN TRANSACTIONS
The Company has entered into employment agreements with certain of its executive
officers. See" Employment Agreements." The Company has issued stock options to
its directors and officers and entered into Indemnification Agreements with its
directors. See "Director Compensation" and "Stock Options."
In March 1999 the Company terminated its 1996 Non-Employee Director Stock Award
Plan under which, in June 1996, it had issued restricted shares of Common Stock
to all non-employee directors, other than Victor W. Schmitt. The restricted
shares vested cumulatively at the rate of 25% per year and were subject to a
non-lapsing right of first refusal to the Company to repurchase the shares at
market value, minus $4.25, in the event the director desired to transfer the
shares. In April 1999 the Company changed the terms of the restricted shares by
vesting the 50,000 unvested restricted shares held by Mr. Drapkin and the 25,000
unvested restricted shares
26
<PAGE>
held by each of Dr. Rose and then directors Fink, Rosenwald, Weiner and
Robinson, by eliminating the Company's right of first refusal.
Relationship with Baxter
Overview
The Company's significant operating activities began with its December 1997
acquisition of the business of the Immunotherapy Division (the "Division") of
the Biotech Business Group of Baxter Healthcare Corporation ("Baxter"). In
connection therewith, the Company entered into several agreements with Baxter by
which Baxter agreed to perform certain activities related to the Division. In
1999, the parties entered into additional agreements to restructure Baxter's
ownership interest in the Company and NCI and to modify their business
arrangements.
December 1997 - Acquisition of the Immunotherapy Division
In December 1997, the Company acquired substantially all of the assets of the
Division. In exchange for these assets, Baxter received (i) 11,000,000 shares of
Common Stock, (ii) 66,304 shares of the Company's Series A Convertible Preferred
Stock, convertible into Common Stock at a conversion price of $5.50 per share,
(iii) 19.5% of the outstanding common stock of NCI, (iv) a warrant to purchase
an additional 6% of the then outstanding common stock of NCI for an aggregate
$6,000,000, and (v) the right to receive payments up to $21,000,000 from NCI
upon the occurrence of certain milestone events. The $21,000,000 represents the
maximum potential amount that could be paid by the Company when, and if, certain
FDA and European regulatory approvals are obtained. As the amount of the
contingent consideration, if any, was not determinable nor was the achievement
of the milestones considered probable at the date of the acquisition, it was
excluded from the determination of the cost of the acquisition. In addition,
Baxter purchased $30,000,000 principal amount of NCI's 6 1/2% convertible
subordinated debentures. Many of these terms have been renegotiated as set forth
below.
Marketing, Sales and Distribution Agreement ("Distribution Agreement"). NCI
- -----------------------------------------------------------------------
appointed Baxter as its exclusive worldwide marketing, sales and distribution
entity for NCI's Isolex(R) and Maxsep(R) products and reagent kits, with the
right of first offer with respect to acquiring such rights for NCI's future
products. NCI agreed to supply to Baxter products and kits at a discount to
NCI's suggested retail price. The Distribution Agreement was, by its terms, to
expire December 17, 2008. However, as described below, as of November 30, 1999,
the parties terminated the agreement.
Services Agreement. Baxter agreed to provide the following services as
- ------------------
necessary to meet NCI's requirements: access to Baxter's Information Management
Center; quality and compliance training; access to the Baxter Institute for
Training and Development; and access to specific accounts through Baxter's
General Ledger and Fixed Assets Systems. NCI agreed to pay only for those
services requested. In addition, Baxter agreed to manufacture, warehouse and
manage inventory for certain clinical codes under protocols in accordance with
the terms of the Hardware and Disposables Supply Agreement and the Hardware and
Disposables Manufacturing Agreement and, at its option, to manufacture certain
prototype products for the research market
27
<PAGE>
at a cost to NCI of time and materials plus 20%. Baxter's obligation to provide
the services was extended until June 30, 1999, at which time (as described
below) the Services Agreement was terminated.
Hardware and Disposables Manufacturing Agreement. Baxter agreed to manufacture
- ------------------------------------------------
on a non-exclusive basis for NCI certain Isolex(R) and Maxsep(R) products and
components and to complete assembly of Isolex(R) and Maxsep(R) instruments and
disposable sets. NCI agreed to pay Baxter's Fully Loaded Cost for the products
and components for the first three years, and Baxter's Fully Loaded Cost plus
15% for the remaining years. Baxter's "Fully Loaded Cost" means the cost to
Baxter of manufacturing the items, including any royalties payable by Baxter in
connection with such manufacturing. The Agreement expires on December 17, 2002.
Antibody Manufacturing and Storage Agreement. Baxter agreed to manufacture on a
- --------------------------------------------
non-exclusive basis for NCI certain antibodies, reagents and reagent kits used
in connection with the Isolex(R) and Maxsep(R) products. NCI agreed to pay
Baxter's Fully Loaded Cost for the antibodies, reagents and reagent kits for the
first three years, and Baxter's Fully Loaded Cost plus 15% for the remaining
years. The Agreement expires on December 17, 2002.
Hardware and Disposables Supply Agreement. Baxter agreed to supply to NCI
- -----------------------------------------
certain of Baxter's products and components in conjunction with the manufacture,
use and sale of Isolex(R) and Maxsep(R) products. Baxter granted to NCI the
exclusive worldwide royalty-free right to distribute such products and
components in connection with ex vivo cell processing, subject to certain
exceptions. NCI agreed to pay Baxter's Fully Loaded Cost for the products and
components for the first three years, Baxter's Fully Loaded Cost plus 15% for
the next two years and Baxter's Fully Loaded Cost plus 30% for the remaining
years. The Agreement expires on December 17, 2008.
License Agreements. Pursuant to four separate sublicense agreements, Baxter
- ------------------
sublicensed to NCI its rights under the following licenses: license from Baxter
and Becton, Dickinson & Company to certain CD34+ cell population and related
antibody and method patents (the "First License"); license from Becton,
Dickinson & Company ("Becton Dickinson") to certain B cell antibodies; license
from Chiron Therapeutics to certain breast cancer antibodies; and license from
Professor Bernd Dorken to certain B Cell antibodies. In addition, pursuant to a
royalty assignment and agreement, Baxter assigned to NCI its rights to receive
royalties under three sublicenses Baxter had previously granted under the First
License.
Non-Competition and Confidentiality Agreement. Each party agreed not to,
- ---------------------------------------------
directly or indirectly, engage in, render advisory services to an entity that
engages in, or be a joint venturer, partner, licensor or shareholder of more
than 2% of any entity that engages in, the marketing, sale or distribution of
any product that directly competes with certain products of the other. In the
case of Baxter's products, such protected products are for use in on-line
separation of human blood into its constituents. In the case of the Company's
and NCI's products, such protected products are for use in ex vivo cell
selection or genetic alteration and/or expansion in combination with such
selection. Baxter's non-competition obligations expire on the later of December
17, 2004, one year after the date on which Baxter does not own 10% of NCI's
common stock nor has a seat on NCI's board of directors, or the termination of
the Distribution
28
<PAGE>
Agreement. The Company's obligations expire on the later of December 17, 2004,
or one year after the date on which the Company does not have voting control of
NCI nor has a seat on NCI's board of directors. NCI's obligations expire on the
later of December 17, 2010, or the termination of the Hardware and Disposables
Supply Agreement.
The Company and Baxter are also parties to a Registration Rights Agreement dated
December 17, 1997 whereby the Company has granted certain demand and piggyback
rights to Baxter.
The Company, certain current and former directors of the Company, certain other
parties and Baxter are also parties to a Voting Agreement. For a description of
the Voting Agreement see "Proposal 1-Election of Directors."
January 1999 through June 1999 - Transfers of Ownership and Assets
In early 1999, the Company and Baxter agreed that it would be in the best
interests of both parties to (i) restructure Baxter's ownership interests in the
Company and NCI, and (ii) modify certain business arrangements among the
Company, NCI and Baxter. In January 1999, the Company and Baxter agreed that the
Company would purchase Baxter's interest in NCI (other than Baxter's right to
milestone payments), resulting in the Company owning 100% of NCI. In exchange
for the common stock, warrant and convertible debentures of NCI then held by
Baxter, Baxter received (i) 3,000,000 shares of Common Stock, (ii) a warrant to
purchase an additional 5,200,000 shares of Common Stock at an exercise price of
$1.15 per share, (iii) a change in the conversion price of the 70,282 shares of
Series A Convertible Preferred Stock then held by Baxter (an increase from
66,304 shares resulting from dividends payable in kind) from $5.50 to $2.75 per
share, and (iv) approximately $33,000,000 principal amount of the Company's 6
1/2% convertible subordinated debentures (replacing the $30,000,000 principal
amount of NCI's 6 1/2% convertible subordinated debentures, plus accrued
interest).
Following the closing on May 28, 1999 (which occurred after stockholder approval
of the transaction at the Company's May 25, 1999 annual meeting of
stockholders), NCI became a wholly owned subsidiary of the Company.
In June 1999, the Company and Baxter entered into a series of agreements dated
June 30, 1999 pursuant to which, among other things, Baxter transferred the
sales, marketing and distribution responsibilities for Isolex(R) and the
Company's other cell therapy products to the Company. Pursuant to an asset
transfer agreement, the Company agreed to purchase from Baxter the finished
goods inventory, copies of customer lists and accounting books and records,
hardware and related assets leased or owned, and agreements with customers and
service contracts, all relating to the products previously marketed and
distributed by Baxter under the Distribution Agreement. In addition, certain
Baxter personnel transferred to the Company and became part of the Company's
worldwide sales force. The purchase price for the transferred assets was equal
to the price Baxter as a distributor had originally paid to NCI for the finished
goods inventory plus the book value of all other transferred assets. The closing
for the transfer of assets in the United States and Canada occurred on June 30,
1999 and in the rest of the world occurred on November 30, 1999. For the year
ended December 31, 1999, the Company's cost of repurchasing the inventory in the
United States was approximately $1,000,000 and in the rest of the world was
29
<PAGE>
approximately $2,000,000. Additionally, the Company purchased approximately
$1,200,000 in devices classified as fixed assets.
In connection with the asset transfer, the Company and Baxter also entered into
a royalty agreement pursuant to which Baxter will receive a royalty of 5% on the
Company's net sales of Isolex(R) and related cell therapy products from January
1, 2001 until December 17, 2008. (Baxter would also be entitled to a royalty of
5% on the Company's net sales of the foregoing products in excess of $50,000,000
in the year 2000, which is highly unlikely to occur). In addition, Baxter
extended a $20,000,000 line of credit to the Company pursuant to a credit
agreement, which agreement terminated by its terms without being drawn on, upon
the closing of the November 1999 financing described below.
As of June 30, 1999 and November 30, 1999, respectively, the Services Agreement
and Distribution Agreement were terminated. The Company now has direct control
of sales of its Isolex(R) and cell therapy products through its field sales
group in the United States and its European headquarters in Belgium. For regions
outside the United States, Canada and Western Europe, NCI and its European
subsidiary are entering into arrangements with third party distributors for
distribution of the Isolex(R) and cell therapy products. The Company is entering
into distribution agreements with distributors unrelated to Baxter in portions
of Northern and Southern Europe and East Asia. In addition, NCI's European
subsidiary has executed an agreement with a Baxter subsidiary for distribution
in Eastern Europe, portions of North Africa and the Middle East. NCI and its
European subsidiary have also entered into several interim services agreements
with Baxter pursuant to which Baxter will continue to provide services in Europe
and certain other regions relating to warehouse and shipping, information
systems, general infrastructure and administrative support, quality assurance
and regulatory affairs.
Baxter has also agreed to continue to provide worldwide services relating to the
installation, repair and maintenance of NCI's cell therapy products pursuant to
the terms of several instrument services agreements dated June 30, 1999 and
November 30, 1999 covering various regions of the world where such products are
sold. Pursuant to the agreements, NCI (or its European affiliate, Nexell
International sprl) will provide training to Baxter personnel, and such
personnel will provide the services as requested by NCI or its customers. NCI
will pay for the services an amount equal to Baxter's Fully Loaded Cost, plus
15% in the case of the United States, Canada and Europe, and plus 20% in the
rest of the world. The instrument services agreements expire upon termination of
the Manufacturing Agreement.
Notwithstanding the termination of the Distribution Agreement, the parties have
agreed that Baxter's obligations with respect to the delivery of Isolex(R) and
other cell therapy products under the Manufacturing Agreement, Antibody
Agreement and Supply Agreement shall remain in full force and effect.
The assets purchased from Baxter in conjunction with the termination of the
supply and manufacturing agreements were accounted for as an asset purchase for
cash. The types of items purchased include saleable inventory, Isolex(R)
devices that are located in customer sites both in the United States and in
Europe and minor amounts of promotional materials.
30
<PAGE>
November 1999 - Private Placement Financing
On November 24, 1999, the Company closed a private placement of its securities
to certain institutional investors pursuant to the terms of a securities
agreement (the "Securities Agreement"). The private placement consisted of the
issuance of (i) 63,000 shares of the Company's newly designated Series B
Cumulative Convertible Preferred Stock ("Series B Preferred Stock"), convertible
at the option of the holder at any time until November 24, 2006 (at which time
the conversion is automatic) into shares of Common Stock at $2.75 per share,
subject to anti-dilution adjustment in certain circumstances; (ii) one right per
share of Series B Preferred Stock to put such share to Baxter International Inc.
("Baxter International"), an affiliate of Baxter, from November 24, 2002 until
November 24, 2004 unless earlier terminated (the "Put Rights"); (iii) warrants
to purchase up to 3,000,000 shares of Common Stock at a purchase price of $3.00
per share, subject to anti-dilution adjustment in certain circumstances,
exercisable for five years; and (iv) a class of performance warrants to purchase
shares of Common Stock at a purchase price of $.01 per share, subject to anti-
dilution adjustment in certain circumstances, exercisable after five years. The
number of performance warrants that may be exercised adjust based upon the
closing price of the Common Stock at the date of exercise, ranging from zero (if
the closing price exceeds $5.00 per share) to 6,000,000 shares (if the closing
price is equal to or less than $3.00 per share). Net proceeds to the Company
from the private placement were approximately $60,400,000. The Company used a
portion of the proceeds in November 1999 to retire approximately $33,900,000 of
the Company's convertible debentures held by Baxter, and intends to use the
remainder of the proceeds for general corporate purposes.
On November 24, 1999, the Company and Baxter International entered into an
agreement (the "Side Letter Agreement") to provide that the conversion price for
the Series B Preferred Stock purchased by Baxter International in the event the
Put Rights are exercised (the "Put Series B Preferred Stock") would be adjusted
on November 24, 2004 (or earlier, if 100% of the Series B Preferred Stock is put
to Baxter International) but only in the event that an amount in excess of
$15,000,000 is purchased by Baxter International, as follows: (i) for the Put
Series B Preferred Stock in an amount up to $53,000,000 (computed on the basis
of the liquidation preference for such stock) (the "Threshold"), the conversion
price would be adjusted to equal the closing price of the Common Stock on the
respective date or dates such Series B Preferred Stock was purchased by Baxter
International (including purchases below the $15,000,000 amount), less a 5%
discount (subject to a floor price equal to the closing price of the Common
Stock on November 24, 1999, unless shareholder approval is obtained if required
by the rules of the Nasdaq Stock Market); (ii) for the Put Series B Preferred
Stock in an amount in excess of the Threshold, then the conversion price would
be adjusted to equal the closing price of the Common Stock on November 24, 1999.
The dollar amount of the Put Series B Preferred Stock would be deemed to accrue
interest (payable in kind in shares of Series B Preferred Stock) from the
respective date or dates the Series B Preferred Stock is put to Baxter
International to the date the adjusted conversion price is determined, at a rate
equal to the applicable three-year U.S. Treasury Note rate at the date of each
such purchase, plus 100 basis points. In the event that the foregoing conversion
adjustments would not be permissible under Delaware law, the Company has agreed
to take such action as is appropriate to exchange the Put Series B Preferred
Stock for an equal number of shares of a new series of preferred stock of the
Company, having the identical terms,
31
<PAGE>
conditions, preferences and rights of the Series B Preferred Stock, except that
it would bear the conversion price adjustment described above.
The Company and Baxter International also entered into a Put Agreement dated
November 24, 1999 pursuant to which the parties made certain representations to
each other, and agreed to take certain actions in connection with, and to
provide for certain rights and remedies regarding the transactions contemplated
by, the Securities Agreement.
On December 17, 1999, pursuant to the terms of the Series A Preferred Stock
owned by Baxter, the Company issued 4,216 additional shares of Series A
Preferred Stock to Baxter as a result of dividends payable in kind.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
executive officers, directors and holders of more than 10% of the Common Stock
(collectively, "Reporting Persons") file reports of their holdings and
transactions in the Common Stock with the Securities and Exchange Commission.
Based on a review of Section 16 forms filed by the Reporting Persons during the
last fiscal year and written representations of the Reporting Persons, the
Company believes that the Reporting Persons timely complied with all applicable
Section 16 filing requirements, except that William A. Albright, Jr., David
Hirsch, Jeanne Pierson, Amy Ross, Michael Griffith, Ph.D., Dennis Van Epps,
Ph.D. and William Wong, Ph.D. filed late their initial ownership reports on Form
3, and Michael Griffith filed late one report on Form 4 relating to two
transactions involving a purchase of Common Stock. In addition, John Hancock
Financial Services, Inc. filed late its initial ownership report on Form 3.
32
<PAGE>
PROPOSAL 2
APPROVAL OF A PROPOSAL TO AMEND THE COMPANY'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, TO EFFECT A
1 FOR 4 REVERSE STOCK SPLIT, WHEREBY THE COMPANY WOULD ISSUE ONE
NEW SHARE OF COMMON STOCK IN EXCHANGE FOR FOUR SHARES OF
OUTSTANDING COMMON STOCK
Background
The Company's stockholders are being asked in this Proposal 2 to approve an
amendment to the Company's Amended and Restated Certificate of Incorporation, as
amended (the "Restated Certificate"), to effect a 1 for 4 reverse stock split of
Common Stock whereby the Company would issue one new share of Common Stock in
exchange for four shares of outstanding Common Stock (the "Reverse Split").
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THIS
PROPOSAL.
The complete text of the form of amendment to the Restated Certificate that
would be filed with the office of the Secretary of State of the State of
Delaware to effect the Reverse Split is set forth in Appendix A to this Proxy
Statement; provided, however, that such text is subject to amendment to include
such changes as may be required by the office of the Secretary of State of the
State of Delaware and as the Company's Board of Directors (the "Board") deems
necessary and advisable to effect the Reverse Split described above.
Reasons for the Reverse Split
The Board believes that the Company's capital structure, principally the high
number of shares of Common Stock outstanding and issuable on a fully diluted
basis, is an impediment to increasing long-term support for the Common Stock.
The Board further believes that the number of shares of Common Stock outstanding
should conform to more typical ownership patterns and levels, consistent with
other emerging biotechnology companies to which the Company might be compared by
investors. Consequently, the Board has determined that the Reverse Split is in
the long term best interest of shareholders. Assuming the Reverse Split is
approved as proposed, the increased market price of its Common Stock expected as
a result of the Reverse Split and the reduction in the public float may help
attract institutional investors which the Board believes may have a longer term
investment horizon and therefore help develop longer term demand for and support
of the Common Stock. This may improve the marketability and liquidity of the
Common Stock by appealing to a broader market than that which currently exists
and may encourage interest and trading in the Common Stock by institutional
investors and others, as well as securities analyst research coverage. This may
also enhance the acceptability of the Common Stock by the financial community
and investing public and broaden the investor pool from which the Company might
be able to obtain additional financing. It may also assist the Company in
33
<PAGE>
effecting acquisitions. There can be no assurance, however, that the Reverse
Split will have the foregoing effects.
Many brokerage houses and institutional investors have internal policies and
practices that either prohibit them from investing in lower-priced stocks or
tend to discourage individual brokers from recommending lower-priced stocks to
their customers. Some of those policies and practices may function to make the
processing of trades in lower-priced stocks economically unattractive to
brokers. Additionally, because brokers' commissions on lower-priced stocks
generally represent a higher percentage of the stock price than commissions on
higher-priced stocks, the current average price per share of the Common Stock
can result in individual stockholders paying transaction costs representing a
higher percentage of their total share value than would be the case if the share
price were substantially higher. If the Reverse Split is implemented, however,
holders of fewer than 100 shares of Common Stock ("odd-lots") after the Reverse
Split is effected may be charged brokerage fees that are proportionally higher
than holders of more than 100 shares of Common Stock ("round-lots"). The Board
is hopeful that the anticipated higher market price will reduce, to some extent,
the negative effects on the liquidity and marketability of the Common Stock
inherent in some of the policies and practices of institutional investors and
brokerage houses described above.
Stockholders should note that the effect of the Reverse Split upon the market
price of the Common Stock cannot be accurately predicted. In particular, there
is no assurance that the price for shares of the Common Stock after the Reverse
Split will be four times the prices for shares of the Common Stock immediately
prior to the Reverse Split. Furthermore, there can be no assurance that the
Reverse Split will not adversely impact the market price of the Common Stock or,
alternatively, that any increased price per share of the Common Stock
immediately after the Reverse Split will be sustained for any prolonged period
of time.
Effects of the Reverse Split on Registration, Voting Rights and Preferred Stock
The Common Stock is currently registered under Section 12(g) of the Exchange
Act, and the Company is subject to the periodic reporting and other requirements
of the Exchange Act. After the Reverse Split, the Common Stock will continue to
be reported on the Nasdaq National Market under the symbol "NEXL" (although
Nasdaq will add the letter "D" to the end of the trading symbol for a period of
20 trading days to indicate the Reverse Split has occurred).
Proportionate voting rights and other rights of the holders of Common Stock will
not be affected by the Reverse Split (other than as a result of the payment of
cash in lieu of fractional shares as described below). For example, a holder of
2% of the voting power of the outstanding shares of Common Stock immediately
prior to the effective time of the Reverse Split will continue to hold 2% of the
voting power of the outstanding shares of Common Stock after the Reverse Split.
The Reverse Split will not affect the rights of the stockholders or any
stockholder's proportionate equity interest in the Company (subject to the
treatment of fractional shares). The number of stockholders of record will not
be affected by the Reverse Split (except to the extent that any stockholder
holds only a fractional share interest and receives cash for such interest after
the Reverse Split).
34
<PAGE>
The Reverse Split also will result in an adjustment to the conversion ratio of
outstanding shares of the Company's Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock. In each case, the Reverse Split causes a
reduction in the number of shares of Common Stock issuable upon conversion of
those series of Preferred Stock. The table below shows the effect of the Reverse
Split on the Common Stock, Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock.
<TABLE>
<CAPTION>
Common Stock Or Equivalent Common Stock Outstanding
Security Outstanding (4/17/00) after Reverse Split
-------------------------- ------------------------
<S> <C> <C>
Common Stock, $.001 par value 74,443,657 18,610,914
Series A Convertible Preferred
Stock, $.001 par value 27,090,181 6,772,545
Series B Convertible Preferred
Stock, $.001 par value 22,909,091 5,727,272
</TABLE>
Effect on Stock Options, Warrants and Par Value
The Reverse Split will effect a reduction in the number of shares of Common
Stock available for issuance under the Stock Option Plans and the 1995 Director
Plan , as well as shares of Common Stock issuable upon exercise of stock options
outside of the such plans, in proportion to the exchange ratio of the Reverse
Split. The aggregate number of shares of Common Stock currently authorized and
available for issuance under the Stock Option Plans and the 1995 Director Plan
is approximately 8,500,000 (including shares subject to outstanding options and
shares available for future grants) and 1,500,000 shares are authorized and
available for issuance on exercise of stock options outside of such plans, in
each case prior to giving effect to the Reverse Split. The aggregate number of
shares authorized and available for issuance upon exercise of options under the
Stock Option Plans and 1995 Director Plan and outside such plans will reduce, in
aggregate, to 2,500,000 shares upon the Reverse Split. The exercise prices for
the options outstanding under the Stock Option Plans and 1995 Director Plan and
outside such plans will be increased proportionate to the Reverse Split ratio.
If Proposal 4 is approved to increase the number of shares of Common Stock
issuable under the 1997 Plan by 2,250,000 such increase would adjust to 562,500
upon the Reverse Split.
As of the Record Date, the Company also has outstanding 1,335,011 publicly
traded warrants (NEXLW) (the "1996 Warrants") to purchase approximately
1,478,963 shares of the Common Stock, Class A Warrants--exercisable for 15
business days commencing November 24, 2004--to purchase up to a maximum of
6,000,000 shares of Common Stock, Class B Warrants to purchase 3,000,000 shares
of Common Stock and warrants issued to Baxter to purchase 5,200,000 shares of
Common Stock. Under the terms of the outstanding warrants, the Reverse Split
will effect a reduction in the number of shares of Common Stock issuable upon
exercise of such warrants in proportion to the exchange ratio of the Reverse
Split and will effect a
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<PAGE>
proportionate increase in the exercise price of such outstanding warrants. The
exercise price for the 1996 Warrants will change from $1.35 to $5.40, the
exercise price for the Class A Warrants will change from $.01 to $.04, the
exercise price for the Class B Warrants will change from $3.00 to $12.00 and the
exercise price for the warrants issued to Baxter will change from $1.15 to
$4.60. The aggregate shares of Common Stock available for issuance under all
outstanding warrants will reduce from 15,678,963 to 3,919,740 upon the Reverse
Split.
The par value of the Common Stock and Preferred Stock will remain at $0.001 per
share following the effective time of the Reverse Split, while the number of
shares of Common Stock issued and outstanding will be reduced. Consequently,
the aggregate par value of the issued and outstanding Common Stock also will be
reduced. In addition, the number of authorized shares of Common Stock will only
be reduced in the event that Proposal 3 is approved. See Proposal 3. Even if
Proposal 3 is approved the number of authorized but unissued shares of Common
Stock, i.e., shares available for future issuance, effectively will be increased
by the Reverse Split. The issuance of such additional authorized shares, if
such shares were issued, may have the effect of diluting any earnings per share
and book value per share, as well as the stock ownership and voting rights, of
outstanding Common Stock. The effective increase in the number of authorized
but unissued shares of Common Stock may be construed as having an anti-takeover
effect by permitting the issuance of shares to purchasers who might oppose a
hostile takeover bid or oppose any efforts to amend or repeal certain provisions
of the Company's Restated Certificate or Bylaws.
Effective Date
The Reverse Split would become effective as of the close of business on the date
of filing (the "Effective Date") of a Certificate of Amendment to the Restated
Certificate with the office of the Secretary of State of the State of Delaware.
It is anticipated that, if the stockholders approve the Reverse Split, it will
become effective on June 14, 2000 or as promptly thereafter as practicable.
Except as explained below with respect to fractional shares, on the Effective
Date, each share of Common Stock issued and outstanding immediately prior
thereto (the "Old Common Stock") will be, automatically and without any action
on the part of the stockholders, converted into 1/4 of a share of the Company's
Common Stock proposed to be issued in connection with the Reverse Split (the
"New Common Stock").
In accordance with Delaware law and notwithstanding approval of the Reverse
Split by the stockholders, at any time prior to the Effective Date, the Board of
Directors, in its sole discretion, may abandon the proposal without any further
action by stockholders.
Exchange of Stock Certificates and Payment for Fractional Shares
Shortly after the Effective Date, each holder of an outstanding certificate
theretofore representing shares of Old Common Stock will receive from American
Stock Transfer & Trust Company, as the Company's exchange agent (the "Exchange
Agent") for the Reverse Split, instructions for the surrender of such
certificate to the Exchange Agent. Such instructions will include a form of
Transmittal Letter to be completed and returned to the Exchange Agent. As soon
as practicable after the surrender to the Exchange Agent of any certificate
which prior to the Reverse Split
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<PAGE>
represented shares of Old Common Stock, together with a duly executed
Transmittal Letter and any other documents the Exchange Agent may specify, the
Exchange Agent shall deliver to the person in whose name such certificate had
been issued certificates registered in the name of such person representing the
number of full shares of New Common Stock into which the shares of Old Common
Stock previously represented by the surrendered certificate shall have been
reclassified and a check for any amounts to be paid in cash in lieu of any
fractional share interest (as discussed in the next paragraph below). Each
certificate representing shares of New Common Stock issued in connection with
the Reverse Split will continue to bear any legends restricting the transfer of
such shares that were borne by the surrendered certificates representing the
shares of Old Common Stock. Until surrendered as contemplated herein, each
certificate which immediately prior to the Reverse Split represented any shares
of Old Common Stock shall be deemed at and after the Reverse Split to represent
the number of full shares of New Common Stock contemplated by the preceding
sentence.
No fractional shares of New Common Stock will be issued as a result of the
Reverse Split. In lieu of any such fractional share interest, each holder of
Old Common Stock who as a result of the Reverse Split would otherwise receive a
fractional share of New Common Stock will be entitled to receive cash in an
amount equal to the product obtained by multiplying (i) the closing sales price
of the Common Stock on the Effective Date as reported on the Nasdaq National
Market by (ii) the number of shares of Old Common Stock held by such holder that
would otherwise have been exchanged for such fractional share interest. Such
amount will be issued to such holder in the form of a check in accordance with
the exchange procedures outlined above.
No service charges, brokerage commissions or transfer taxes will be payable by
any holder of any certificate which prior to approval of the Reverse Split
represented any shares of Old Common Stock, except that if any certificates of
New Common Stock are to be issued in a name other than that in which the
certificates for shares of Old Common Stock surrendered are registered, it will
be a condition of such issuance that (i) the person requesting such issuance
shall pay to the Company any transfer taxes payable by reason thereof (or prior
to transfer of such certificate, if any) or establish to the satisfaction of the
Company that such taxes have been paid or are not payable, (ii) such transfer
must comply with all applicable federal and state securities laws, and (iii)
such surrendered certificate must be properly endorsed and otherwise be in
proper form for transfer.
No Appraisal Rights
Under Delaware law, stockholders of the Company are not entitled to appraisal
rights with respect to the Reverse Split.
Material Federal Income Tax Consequences of the Reverse Split
A summary of the federal income tax consequences of the Reverse Split to the
Company and to individual stockholders is set forth below. The following
discussion is based upon present federal income tax law. The discussion is not
intended to be, nor should it be relied upon as, a comprehensive analysis of the
tax issues arising from or relating to the Reverse Split. In addition, the
Company has not and will not seek an opinion of counsel or a ruling from the
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Internal Revenue Service regarding the federal income tax consequences of the
Reverse Split. Accordingly, stockholders are advised to consult their own tax
advisors for more detailed information regarding the effects of the Reverse
Split on them under applicable federal, state, local and foreign income tax
laws.
It is intended that the Reverse Split will constitute a reorganization (a
"Reorganization") within the meaning of Section 368(a)(1)(E) of the Internal
Revenue Code of 1986, as amended. Assuming that the Reverse Split qualifies as
a Reorganization, the following federal tax consequences should result:
1. A stockholder will not recognize any gain or loss as a result of the
Reverse Split except to the extent a stockholder receives cash in lieu of
a fractional share. To the extent a stockholder receives cash in lieu of a
fractional share, for tax purposes the stockholder will be deemed to have
sold the fractional share to the Company. Although it is impossible to
predict with certainty the tax consequences to any individual stockholder,
such stockholder will likely recognize a gain or loss as a result of the
repurchase of a fractional share equal to the difference between (i) the
stockholder's proportionate adjusted basis in such fractional share, and
(ii) the cash amount received for such fractional share. Any gain will be
treated as short-term capital gain taxable at a maximum federal income tax
rate of 39.6% to a non-corporate stockholder if the stockholder has held
his shares for one year or less prior to the Effective Date or long-term
capital gain taxable at a maximum federal income tax rate of 20% to a non-
corporate stockholder if the stockholder has held his shares for more than
one year prior to the Effective Date.
2. The aggregate tax basis of the shares of New Common Stock received by the
stockholder pursuant to the Reverse Split will equal the aggregate tax
basis of the shares of Old Common Stock held by the stockholder
immediately prior to the Effective Date of the Reverse Split reduced by
any basis allocated to a fractional share for which the stockholder
receives cash. The stockholder will be able to "tack" the holding period
of the Old Common Stock prior to the Reverse Split to the holding period
of the New Common Stock received by the stockholder as a result of the
Reverse Split, provided that the shares of Old Common Stock were capital
assets in the hands of the stockholder.
3. Holders of any series of Preferred Stock of the Company will recognize no
income, gain or loss for federal income tax purposes as a result of the
changes to the conversion ratios for such stock incident to the Reverse
Split. The Company will not recognize gain or loss as a result of the
Reverse Split.
Required Vote
The affirmative vote of the holders of a majority of the shares of Common Stock
outstanding is necessary to approve the Reverse Split.
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THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
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PROPOSAL 3
APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION TO REDUCE THE AUTHORIZED SHARES
OF COMMON STOCK FROM 160,000,000 TO 80,000,000
Conditional upon and subject to the approval by the stockholders of the Company
of the Reverse Split (see Proposal 2), the Company's Board of Directors has
determined that it is in the best interests of the Company to reduce the number
of shares of Common Stock that are authorized for issuance by the Company from
160,000,000 to 80,000,000. There would be no change in the number of authorized
shares of Preferred Stock.
The Company believes that reducing the number of shares of Common Stock
authorized will enable it to realize a savings of approximately $70,000 per year
in Delaware franchise taxes at no material disadvantage to the Company.
Delaware, the state in which the Company is incorporated, assesses annual
franchise taxes on the basis of the number of authorized shares and outstanding
shares. The Company's current annual franchise tax is approximately $37,000 per
year. The Company would incur $150,000 in annual franchise taxes if the Reverse
Split is effected and there is no reduction in the authorized number of shares
of Common Stock.
Based on the number of shares of Common Stock outstanding on the Record Date,
and assuming the Reverse Split were implemented and Proposal 4 was adopted,
there would be 18,610,914 shares of Common Stock issued and outstanding, and
there would be reserved for issuance upon exercise of outstanding derivative
securities, including the Company's Series A Preferred Stock, Series B Preferred
Stock, Class A Warrants, Class B Warrants, 1996 Warrants, certain other
warrants, and outstanding or authorized options to directors, employees and
others, approximately 19,482,057 shares of Common Stock (see Proposal 2).
If the Reverse Split is effected, the Board of Directors believes that following
this reduction in authorized shares of Common Stock, a sufficient number of
authorized but unissued shares of Common Stock will be available for equity
offerings and acquisitions as such opportunities arise in the future, as well as
for the issuance of Common Stock pursuant to the exercise or conversion of the
derivative shares described above.
The Board believes that the tax savings from the reduction in authorized shares
of Common Stock outweighs any need to have a larger number of authorized shares
available for issuance.
The complete text of the form of amendment to the Restated Certificate that
would be filed with the office of the Secretary of State of the State of
Delaware to effect the reduction in authorized shares of Common Stock is set
forth in Appendix A to this Proxy Statement; provided, however, that such text
is subject to amendment to include such changes as may be required by the office
of the Secretary of State of the State of Delaware and as the Board deems
necessary and advisable to effect the amendment described above.
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The affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Company is required for the approval of the amendment to the
Company's Restated Certificate to reduce the number of authorized shares of
Common Stock.
This Proposal will only be implemented if the Reverse Split is effected.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
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PROPOSAL 4
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES OF COMMON
STOCK ISSUABLE UNDER THE 1997 STOCK OPTION PLAN
General
Under the Company's 1997 Incentive and Non-Incentive Stock Option Plan, as
amended, approved by stockholders in 1997, an aggregate of 3,000,000 shares are
reserved for issuance upon exercise of options thereunder. A copy of the 1997
Plan is attached as Appendix B. Under the 1997 Plan, incentive stock options, as
defined in section 422 of the Internal Revenue Code (the "Code"), may be granted
to employees and non-incentive stock options may be granted to employees,
directors and other persons as the Stock Option Committee appointed by the Board
of Directors determines will contribute to the Company's success, at exercise
prices equal to at least 100% (with respect to incentive stock options) and at
least 50% (with respect to non-incentive stock options) of the fair market value
of the Common Stock on the date of grant. In addition to selecting the
optionees, the Committee determines the number of shares of Common Stock subject
to each option, the term of each non-incentive stock option, the time or times
when the non-incentive stock option becomes exercisable, and otherwise
administers the 1997 Plan. Options are granted for a term determined by the
Committee, not to exceed ten years, and are exercisable on terms and conditions
determined by the Committee. Generally, options granted under the 1997 Plan may
not be exercised more than three months following termination of employment or
engagement, except terminations by reason of death or disability, in which case
such options may be exercised for one year following such event. However, the
Committee may in its discretion extend the time required to exercise non-
incentive options for up to ten years after the date of grant. Options become
immediately exercisable upon a change in control as defined in the 1997 Plan.
The 1997 Plan will terminate in February 2007 unless earlier terminated by the
Board of Directors.
The purpose of the 1997 Plan is to further the growth and development of the
Company by encouraging selected employees, directors and other persons who
contribute and are expected to contribute materially to the Company's success to
obtain a proprietary interest in the Company through the ownership of its Common
Stock, thereby providing such persons with an added incentive to promote the
best interests of the Company and affording the Company a means of attracting
persons of outstanding ability to its service. Approximately 150 employees of
the Company and an indeterminate number of consultants and others are eligible
to participate in the 1997 Plan.
As of the March 1, 2000, options to purchase an aggregate of 2,461,800 shares of
Common Stock had been granted and were outstanding under the 1997 Plan, 538,200
shares were available for future grants thereunder and 16,599 shares were
available for future grants under other plans.
The Board of Directors has proposed that the total number of shares of Common
Stock which may be issued upon the exercise of options granted under the 1997
Plan be increased by 2,250,000, from 3,000,000 to 5,250,000, to ensure
additional options are available in the future
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<PAGE>
to compensate and motivate existing participants and employees and to attract
employees in the future. Pursuant to the terms of the 1997 Plan the foregoing
proposed increase must be approved by the stockholders of the Company. In all
other respects, the terms of the 1997 Plan will remain unchanged. In the event
the Reverse Split is approved, the increase in the number of shares will change
from 2,250,000 to 562,500.
Federal Income Tax Consequences
The following is based upon federal tax laws and regulations as presently in
effect and does not purport to be a complete description of the federal income
tax aspects of the 1997 Plan. Also, the specific state tax consequences to each
participant under the 1997 Plan may vary, depending upon the laws of the various
states and the individual circumstances of each participant. Accordingly,
participants should consult with their own tax advisors.
Incentive Stock Options
No taxable income is recognized by the optionee upon the grant of an incentive
stock option. Further, no taxable income will be recognized by the optionee upon
exercise of an incentive stock option and no expense deduction will be available
to the Company, provided the optionee holds the shares acquired upon such
exercise for at least two years from the date of grant of the option and for at
least one year from the date of exercise. Any gain on the subsequent sale of the
shares will be considered long-term capital gain provided the two-year and one-
year holding periods are met. The gain recognized upon the sale is equal to the
excess of the amount realized upon the sale (usually the selling price of the
shares) over the exercise price. Therefore, the net federal income tax effect on
an optionee fulfilling the foregoing holding requirements is to defer, until the
shares are sold, taxation of any increase in the value of the shares from the
exercise price and to treat such gain, at the time of sale, as capital gain
rather than ordinary income. However, in general, if the optionee sells the
shares within two years from the date of the option grant or within one year
from the date of exercise (referred to as a "disqualifying disposition"), the
optionee will recognize taxable income at ordinary tax rates in an amount equal
to the lesser of (i) the value of the shares on the date of exercise, less the
exercise price; or (ii) the amount realized on the date of sale, less the
exercise price, and the Company will receive a corresponding business expense
deduction. The balance of any gain recognized on a disqualifying disposition
will be long-term or short-term capital gain depending upon the holding period
of the optioned shares. The special two-year and one-year holding periods for
incentive options do not apply to option shares which are disposed of by the
optionee's estate or a person who acquired such shares by reason of the death of
the optionee.
An employee may be subject to the alternative minimum tax upon exercise of an
incentive stock option since the excess of the fair market value of the shares
purchased at the date of exercise over the exercise price must be included in
alternative minimum taxable income, unless the shares are disposed of in the
same year that the option was exercised.
Non-Incentive Stock Options
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As in the case of incentive stock options, the grant of a non-incentive stock
option will not result in any taxable income to the optionee. However, the tax
treatment upon exercise of non-incentive stock options is different. Generally,
the optionee will recognize ordinary income when the option is exercised in the
amount by which the fair market value of the shares acquired upon exercise of
the option on the date of exercise exceed the exercise price and the Company
will be entitled to a corresponding business expense deduction. The income
recognized by the optionee is compensation income subject to income tax
withholding by the Company. The Company will generally be entitled to an income
tax deduction for the amount of the "spread" at the time a non-incentive option
is exercised, provided that it complies with applicable reporting and
withholding requirements.
The fair market value of the shares on the date of exercise will constitute the
tax basis of the shares for computing gain or loss on any subsequent sale. Any
gain or loss recognized by the optionee upon the subsequent disposition of the
shares will be treated as capital gain or loss and will qualify as long-term
capital gain or loss if the shares have been held for the requisite holding
period (more than twelve months at the date of this Proxy Statement).
Section 162(m) of the Code
Under Section 162(m) of the Code, certain compensation payments in excess of $1
million are subject to a limitation on deductibility for the Company. The
limitation on deductibility applies with respect to that portion of a
compensation payment for a taxable year in excess of $1 million to either the
Company's Chief Executive Officer or any one of its four other most highly
compensated executive officers. Certain performance-based compensation is not
subject to the limitation on deductibility. Options can qualify for this
performance-based exception, but only if they are granted at fair market value
by a committee comprised solely of "outside directors," the total number of
shares that can be granted to an executive for a specified period is stated, and
shareholder and Board approval of the plan is obtained. The Board of Directors
has established certain restrictions on the granting of options under the 1997
Plan to assist in qualifying such compensation for an exemption except that non-
qualified options granted with an exercise price less than the fair market value
of the Common Stock on the date of grant are permitted under the 1997 Plan and
will not qualify for such exemption. Also, in light of the composition of the
Compensation/Stock Option Committee prior to November 1999, options granted
prior thereto will not qualify for such exemption and there can be no assurance
that such exemption will be available in the future.
At the date of this Proxy Statement, long-term capital gain is taxed to
individuals at a maximum rate of 20% (10% for individuals in the 15% bracket),
while ordinary income is subject to tax at a maximum rate that can reach 39.6%.
Required Vote
Approval of the amendment to the 1997 Plan requires the affirmative vote by the
holders of a majority of the outstanding shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote.
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THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4
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PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board of Directors has re-
appointed KPMG LLP as independent auditors for the year ending December 31,
2000. KPMG audited the Company's financial statements in fiscal years 1999,
1998 and 1997.
It is anticipated that a representative of KPMG LLP will be present at the
Annual Meeting to respond to appropriate questions and to make a statement, if
he or she so desires.
Required Vote
Ratification of the appointment of KPMG LLP as independent auditors will require
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5
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ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended December
31, 1999 accompanies this Proxy Statement. The Annual Report includes the
Company's financial statements as reported in its Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 and the report thereon of KPMG LLP,
independent auditors. The Company's Annual Report on Form 10-K may be obtained
without charge upon written request addressed to Investor Relations, Nexell
Therapeutics Inc., 9 Parker, Irvine, California 92618.
STOCKHOLDER PROPOSALS
Under certain circumstances, stockholders are entitled to present proposals for
consideration at stockholder meetings. Any such proposal to be included in the
Proxy Statement for the Company's 2001 Annual Meeting of Stockholders must be
submitted to the Secretary of the Company prior to January 5, 2001 and in
accordance with Rule 14a-8 of the Exchange Act. In addition, proxies solicited
by management may contain discretionary authority to vote on matters which are
not included in the Proxy Statement but which are raised at the Annual Meeting
of Stockholders, unless the Company receives written notice of such matters on
or before March 21, 2001. However, in the event that the date of the 2001 Annual
Meeting of Stockholders is more that 30 days before or more that 30 days after
the anniversary date of the 2000 Annual Meeting, proposals to be considered
timely must be received at a reasonable time before the Company begins to print
and mail its proxy materials. It is suggested that such proposals be sent by
Certified Mail--Return Receipt Requested.
OTHER BUSINESS
Management does not know of any matter to be brought before the Annual Meeting
other than as described above. In the event any other matter properly comes
before the Annual Meeting, the persons named in the accompanying form of proxy
have discretionary authority to vote on such matters.
NEXELL THERAPEUTICS INC.
By Order of the Board of Directors
William A. Albright, Jr.
Secretary
Dated: April 24, 2000
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APPENDIX A
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION,
AS AMENDED, OF NEXELL THERAPEUTICS INC.
Nexell Therapeutics Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: The name of the Corporation is Nexell Therapeutics Inc. and the
name under which the Corporation originally was incorporated was Cellular
Immunology Corporation.
SECOND: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on December 13, 1986
under the name Cellular Immunology Corporation, and the Amended and Restated
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on July 11, 1990 under the name Vimrx
Pharmaceuticals Inc.
THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Sections 141 and 242 of the General Corporation Law of
the State of Delaware, adopted resolutions at a meeting held on March 16, 2000
to amend the first paragraph of Article IV of the Amended and Restated
Certificate of Incorporation, as amended, of the Corporation to read in its
entirety as follows:
"FOURTH
A. The authorized capital stock of the Corporation shall
consist of eighty-one million, one hundred fifty thousand
(81,150,000) shares, consisting of eighty million
(80,000,000)/1/ shares of Common Stock, each having a par
value of $.001 (the "Common Stock"), and one million, one
hundred fifty thousand (1,150,000) shares of Preferred
Stock, each having a par value of $.001 (the "Preferred
Stock"). Effective at the time of filing with the Secretary
of State of the State of Delaware of this Certificate of
Amendment of Amended and Restated Certificate of
Incorporation, as amended (the "Effective Time"), each four
(4) shares of the Corporation's Common Stock issued and
outstanding shall, automatically and without any action on
the part of the respective holders thereof, be converted
into one (1) share of Common Stock of the Corporation./2/ No
fractional shares shall be issued and, in lieu thereof, any
holder of less than one share of Common Stock shall be
entitled to receive cash for such holder's
____________________
/1/ Proposal 3 reduces the authorized shares of common stock from 160,000,000 to
80,000,000, subject to approval of Proposal 2, the one-for-four reverse
stock split.
/2/ Proposal 2 effects the one-for-four reverse stock split.
A-1
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fractional share based upon the closing sales price of the
Corporation's Common Stock as reported on the Nasdaq
National Market as of the date of the Effective Time. The
Company may retain a third party to collect and pool
fractional share interests, sell the same, and return
payment to the holders of the interests."
FOURTH: Pursuant to a resolution of the Board of Directors, this
Certificate of Amendment of Amended and Restated Certificate of Incorporation,
as amended, was submitted to the stockholders of the Corporation and was duly
approved by the required vote of stockholders of the Corporation in accordance
with Sections 228 and 242 of the Delaware General Corporation Law. The total
number of outstanding shares entitled to vote or consent to this Amendment was
74,443,657 shares of Common Stock. A majority of the outstanding Common Stock
voted in favor of this Certificate of Amendment of Amended and Restated
Certificate of Incorporation, as amended.
IN WITNESS WHEREOF, Nexell Therapeutics Inc. has caused this Certificate of
Amendment to be signed by its President this ___ day of __________, 2000.
NEXELL THERAPEUTICS INC.
By:___________________________________
L. William McIntosh, President
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<PAGE>
APPENDIX B
1997 INCENTIVE AND NON-INCENTIVE
STOCK OPTION PLAN
OF
NEXELL THEAPEUTICS INC.
(FORMERLY NAMED VIMRx PHARMACEUTICALS INC.)
1. Purpose of Plan.
The purpose of this Incentive and Non-Incentive Stock Option Plan
("Plan") is to further the growth and development of VIMRx Pharmaceuticals Inc.
("Company") and any subsidiaries thereof by encouraging selected employees,
directors and other persons who contribute and are expected to contribute
materially to the Company's success to obtain a proprietary interest in the
Company through the ownership of stock, thereby providing such persons with an
added incentive to promote the best interests of the Company and affording the
Company a means of attracting to its service persons of outstanding ability.
2. Stock Subject to the Plan.
An aggregate of 3,000,000/1/ shares of the Company's Common Stock,
$.001 par value ("Common Stock") subject, however, to adjustment or change
pursuant to paragraph 12 hereof, shall be reserved for issuance upon the
exercise of options which may be granted from time to time in accordance with
the Plan ("Options"). Such shares may be, in whole or in part, as the committee
appointed by the Board of Directors to administer the Plan (hereinafter, the
"Committee") shall from time to time determine, authorized but unissued shares
or issued shares which have been reacquired by the Company. If, for any reason,
an Option shall lapse, expire or terminate without having been exercised in
full, the unpurchased shares covered thereby shall again be available for
purposes of the Plan.
/1/ The Board of Directors has recommended that this be increased to 5,250,000.
See Proposal 4. In the event the reverse stock split is effected, the aggregate
number of shares under this plan if Proposal 4 is adopted would be 1,312,500.
3. Administration.
(a) Except as provided in paragraph (c) below, the Plan shall be
administered by the Committee. The Board of Directors shall appoint the
Committee from among its members. Such Committee shall be composed of two or
more Directors who, to the extent practicable, shall be "outside directors" as
defined in regulations under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and "non-employee directors" as defined by
Regulation 240.16b-3 under the Securities Exchange Act of 1934, as amended. Such
Committee shall have and may exercise any and all of the powers relating to the
administration of the Plan and the grant of Options thereunder as are set forth
in subparagraph 3(b) hereof as the Board of Directors shall confer and delegate.
The Board of Directors shall have power at any
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<PAGE>
time to fill vacancies in, to change the membership of, or to discharge such
Committee. The Committee shall select one of its members as its chairman and
shall hold its meetings at such time and at such places as it shall deem
advisable. A majority of such Committee shall constitute a quorum and such
majority shall determine its action. Any action may be taken without a meeting
by written consent of all the members of the Committee. The Committee shall keep
minutes of its proceedings and shall report the same to the Board of Directors
at the meeting next succeeding.
(b) The Committee shall administer the Plan and, subject to the
provisions of the Plan, shall have sole authority in its discretion to determine
the persons to whom, and the time or times at which, Options shall be granted;
the number of shares to be subject to each such Option; the provisions regarding
exercisability of each Option; the expiration date of each Option; whether the
Option shall contain a "cashless exercise" provision; whether all or any portion
of the Options shall be incentive stock options ("Incentive Options") qualifying
under Section 422A of the Code or stock options which do not so qualify ("Non-
Incentive Options"); whether a Non-Incentive Option shall have limited
transferability as permitted under the Plan; and whether a Non-Incentive Option
granted to a non-employee shall terminate following the non-employee's
termination of engagement in performing services for the Company or its
subsidiaries pursuant to Section 9 of the Plan. Both Incentive Options and Non-
Incentive Options may be granted to the same person at the same time provided
each type of Option is clearly designated. In making such determinations, the
Committee may take into account the nature of the services rendered by such
persons, their present and potential contribution to the Company's success and
such other factors as the Committee in its sole discretion may deem relevant.
Subject to the express provisions of the Plan, the Committee shall also have
authority to interpret the Plan; to prescribe, amend and rescind rules and
regulations relating thereto; to determine the terms and provisions of the
respective Option Agreements, which shall be substantially in the forms attached
hereto as Exhibit A and Exhibit B; to amend the provisions of outstanding
Options to provide for accelerated exercisability or the extension of the
expiration date of such Options; and to make all other determinations necessary
or advisable for the administration of the Plan, all of which determinations
shall be conclusive and not subject to review.
(c) The Board of Directors may administer the Plan, in lieu of and
with the same powers as the Committee, with respect to any Options granted or to
be granted under the Plan, provided that such administration is consistent with
the provisions of Section 162(m) of the Code.
4. Eligibility for Receipt of Options.
(a) Incentive Options. Incentive Options may be granted only to
employees (including officers) of the Company and/or any of its subsidiaries. A
director of the Company or any subsidiary who is not an employee of the Company
or of one of its subsidiaries is not eligible to receive Incentive Options under
the Plan. Further, Incentive Options may not be granted to any person who, at
the time the Incentive Option is granted, owns (or is considered as owning
within the meaning of Section 425(d) of the Code) stock possessing more th an
10%
B-2
<PAGE>
of the total combined voting power of all classes of stock of the Company or any
subsidiary (10% Owner), unless at the time the Incentive Option is granted to
the 10% Owner, the option price is at least 110% of the fair market value of the
Common Stock subject thereto and such Incentive Option by its terms is not
exercisable subsequent to five years from the date of grant. The aggregate fair
market value (determined as of the time an Incentive Option is granted) of the
shares of the Company's Common Stock initially purchasable upon exercise of an
Incentive Option during any calendar year may not exceed $100,000.
(b) Non-Incentive Options. Non-Incentive Options may be granted to
any employees (including employees who have been granted Incentive Options),
directors, consultants, agents, independent contractors and other persons whom
the Board of Directors (or Committee) determines will contribute to the
Company's success.
(c) The maximum number of shares that may be subject to options under
this Plan granted during any calendar year to any executive officer of the
Company is 800,000 shares.
(d) In the event an outstanding Incentive Option or a portion thereof
no longer qualifies as an incentive stock option under Section 422A of the Code,
such Option or portion thereof, as applicable, thereafter shall be deemed a Non-
Incentive Option under the Plan.
5. Option Price.
The purchase price of the shares of Common Stock under each Option
shall be determined by the Committee, which determination shall be conclusive
and not subject to review, but in no event shall the purchase price be less than
100% of the fair market value of the Common Stock on the date of grant in the
case of Incentive Options (110% of fair market value in the case of Incentive
Options granted to a 10% Owner) and 50% of the fair market value of the Common
Stock on the date of the grant in the case of Non-Incentive Options.
For purposes of the Plan, unless the Committee determines otherwise,
the fair market value" of a share of Common Stock as of a certain date shall be
the closing sale price of the Common Stock on The Nasdaq Stock Market or, if the
Common Stock is not then traded on The Nasdaq Stock Market, such national
securities exchange on which the Common Stock is then traded, on the trading
date immediately preceding the date the fair market value is being determined.
The Committee may make such other determination of fair market value, based on
other factors, as it shall deem appropriate.
For purposes of the Plan, the date of grant of an Option shall be the
date on which the Committee shall by resolution duly authorize such Option.
6. Term of Options.
The term of each Option shall be such number of years as the Committee
shall determine, subject to earlier termination as herein provided, but in no
event more than ten years from the date the Option is granted.
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<PAGE>
7. Exercise of Options.
(a) Each Option shall be exercisable to the extent determined by the
Committee, but in no event shall an Option be exercisable until at least six
months from the date of grant, except as otherwise provided in Paragraph 13
herein.
(b) An Option may not be exercised for fractional shares of the
Company's Common Stock.
(c) Except as provided in paragraphs 9, 10 and 11 hereof, and unless
determined otherwise by the Committee with respect to Non-Incentive Options
granted to non-employees, no Option shall be exercisable unless the holder
thereof shall have been an employee, director, consultant, agent, independent
contractor or other person employed by or engaged in performing services for the
Company and/or a subsidiary continuously from the date of grant to the date of
exercise.
(d) The exercise of an Option shall be contingent upon receipt from
the holder thereof of a written representation that at the time of such exercise
it is the optionee's then present intention to acquire the Option shares for
investment and not with a view to the distribution or resale thereof (unless a
Registration Statement covering the shares purchasable upon exercise of the
Options shall have been declared effective by the Securities and Exchange
Commission) and upon receipt by the Company of cash, or a check to its order,
for the full purchase price of such shares. The Committee may, in its
discretion, include a "cashless exercise" provision in the applicable Option
Agreement, in which event the optionee will be permitted (i) to deliver
previously owned shares of Common Stock with a fair market value equal to the
exercise price in payment of the full purchase price of such shares, or (ii) to
request that the Company withhold shares of Common Stock issuable upon exercise
of such Option with a fair market value equal to the exercise price of the
shares being purchased under the Option (thereby reducing the number of shares
issuable upon exercise of the Option).
(e) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares purchasable upon exercise of the Option
until a certificate for such shares shall have been issued to the holder upon
due exercise of the Option.
(f) The proceeds received by the Company upon exercise of an Option
shall be added to the Company's working capital and be available for general
corporate purposes.
8. Transferability of Options.
No Option granted pursuant to the Plan shall be transferable otherwise
than by will or the laws of descent or distribution and an Option may be
exercised during the lifetime of the holder only by such holder, provided,
however, that the Committee may provide for transferability of a Non-Incentive
Option to an optionee's family members or family trusts.
9. Termination of Employment or Engagement.
B-4
<PAGE>
(a) Except as provided in paragraph (b) below, in the event the
employment of the holder of an Option shall be terminated by the Company or a
subsidiary for any reason other than by reason of death or disability, or the
engagement of a non-employee holder of a Non-Incentive Option shall be
terminated by the Company or a subsidiary for any reason, such holder may,
within three months from the date of such termination, exercise such Option to
the extent such Option was exercisable by such holder at the date of such
termination. Notwithstanding the foregoing, no Option may be exercised
subsequent to the date of its expiration. Absence on leave approved by the
employer corporation shall not be considered an interruption of employment for
any purpose under the Plan. In addition, at the discretion of the Committee, the
exercisability of an outstanding Non-Incentive Option may be extended to a date
determined by the Committee but not beyond ten years from the date of grant.
(b) The Committee may, in its discretion, at the time of grant or by
amending the applicable outstanding Non-Incentive Option, delete the foregoing
termination provision with respect to a Non-Incentive Option granted to a non-
employee of the Company or its subsidiaries.
(c) Nothing in the Plan or in any Option Agreement granted hereunder
shall confer upon any Optionholder any right to continue in the employ of the
Company or any subsidiary or obligate the Company or any subsidiary to continue
the engagement of any Optionholder or interfere in any way with the right of the
Company or any such subsidiary to terminate such Optionholder's employment or
engagement at any time.
10. Disability of Holder of Option.
If the employment of the holder of an Option shall be terminated by
reason of such holder's disability, such holder may, within twelve months from
the date of such termination, exercise such option to the extent such Option was
exercisable by such holder at the date of such termination. Notwithstanding the
foregoing, no Option may be exercised subsequent to the date of its expiration.
11. Death of Holder of Option.
If the holder of any Option shall die while in the employ of, or while
performing services for, the Company or one or more of its subsidiaries (or
within six months following termination of employment due to disability), the
Option theretofore granted to such person may be exercised, but only to the
extent such Option was exercisable by the holder at the date of death (or, with
respect to employees, the date of termination of employment due to disability)
by the legatee or legatees of such person under such person's Last Will, or by
such person's personal representative or distributees, within twelve months from
the date of death but in no event subsequent to the expiration date of the
Option.
12. Adjustments Upon Changes in Capitalization.
If at any time after the date of grant of an Option, the Company shall
by stock dividend, split-up, combination, reclassification or exchange, or
through merger or consolidation or otherwise, change its shares of Common Stock
into a different number or kind or class of
B-5
<PAGE>
shares or other securities or property, then the number of shares covered by
such Option and the price per share thereof shall be proportionately adjusted
for any such change by the Committee whose determination thereon shall be
conclusive.
13. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company (as
defined below), all outstanding Options shall become immediately fully
exercisable. For purposes of the Plan, a "change in control" of the Company
shall mean (i) the acquisition at any time by a "person" or "group" (as such
terms are used Sections 13(d) and 14(d)(2) of the Exchange Act of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities representing 50% or more of the combined voting power
in the election of directors of the then outstanding securities of the Company
or any successor or the Company; (ii) the termination of service of directors,
for any reason other than death, disability or retirement from the Board of
Directors, during any period of two consecutive years or less, of individuals
who at the beginning of such period constituted a majority of the Board of
Directors, unless the election of or nomination for election of each new
director during such period was approved by a vote of at least two-thirds of the
directors still in office who were directors at the beginning of the period;
(iii) approval by the stockholders of the Company of any merger, consolidation,
or statutory share exchange as a result of which the Common Stock shall be
changed, converted or exchanged (other than a merger, consolidation or share
exchange with a wholly-owned Subsidiary) or liquidation of the Company or any
sale or disposition of 80% or more of the assets or earning power or the
Company; or (iv) approval by the stockholders of the Company of any merger,
consolidation, or statutory share exchange to which the Company is a party as a
result of which the persons who were stockholders immediately prior to the
effective date of the merger, consolidation or share exchange shall have
beneficial ownership of less than 50% of the combined voting power in the
election of directors of the surviving corporation; provided, however, that no
change in control shall be deemed to have occurred if, prior to such time as a
change in control would otherwise be deemed to have occurred, the Company's
Board of Directors deems otherwise.
14. Vesting of Rights Under Options.
Neither anything contained in the Plan nor in any resolution adopted
or to be adopted by the Committee, the Board of Directors or the stockholders of
the Company shall constitute the vesting of any rights under any Option. The
vesting of such rights shall take place only when a written Option Agreement,
substantially in the form of the Incentive Stock Option Agreement attached
hereto as Exhibit A or the Non-Incentive Stock Option Agreement attached hereto
as Exhibit B, shall be duly executed and delivered by and on behalf of the
Company and the person to whom the Option shall be granted.
15. Withholding Taxes.
Whenever under the Plan shares are to be issued in satisfaction of the
exercise of Options granted thereunder, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements
B-6
<PAGE>
prior to the delivery of any certificate or certificates for such shares.
16. Termination and Amendment.
The Plan, which was adopted by the Board of Directors on February 6,
1997 and is subject to stockholder approval, shall terminate on February 6, 2007
and no Option shall be granted under the Plan after such date. The Board of
Directors may at any time prior to such date terminate the Plan or make such
modifications or amendments thereto as it shall deem advisable, provided,
however, that shareholder approval shall be required:
(i) to increase the number of shares reserved for issuance under the Plan;
(ii) materially increase the benefits accruing to participants under the
Plan;
(iii) materially modify the requirements of eligibility for participation
in the Plan; or
(iv) if otherwise required to comply with the incentive stock option
provisions of Section 162(m) of the Code or the listed company
requirements of The Nasdaq Stock Market or of a national securities
exchange on which the Common Stock is then traded,
and, provided, further, that no modification or amendment shall adversely affect
the rights of a holder of an Option previously granted under the Plan without
such holder's written consent.
B-7
<PAGE>
NEXELL THERAPEUTICS INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 2000
The undersigned hereby appoints RICHARD L. DUNNING and WILLIAM A. ALBRIGHT, JR.,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of Common Stock of Nexell
Therapeutics Inc. which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of Nexell Therapeutics Inc. to be held at the Doubletree
Hotel, 90 Pacifica Avenue, Irvine, California on Wednesday, June 14, 2000 at
9:00 a.m., Pacific Daylight Time, and at any and all continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 THROUGH 5 AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH. THE BOARD OF DIRECTORS OF THE
COMPANY RECOMMENDS A VOTE IN FAVOR OF ALL OF THE NOMINEES LISTED IN PROPOSAL 1
AND FOR APPROVAL OF PROPOSALS 2 THROUGH 5.
(CONTINUED ON OTHER SIDE)
[X] Please mark your vote as in this example.
PROPOSAL 1: To elect a Board of eight directors.
<TABLE>
<S> <C> <C>
[_] FOR all nominees [_] WITHHOLD Nominees:
listed at right AUTHORITY to vote Richard L. Dunning
(except as marked for all nominees listed Donald G. Drapkin
to the contrary below). at right. Eric A. Rose, M.D.
Victor W. Schmitt
C. Richard Piazza
Joseph A. Mollica, Ph.D.
Richard L. Casey
L. William McIntosh
</TABLE>
To withhold authority to vote for any nominee(s), write such nominee(s)' name(s)
below:
- --------------------------------------------------------------------------------
PROPOSAL 2: To approve a proposal to amend the Company's Amended and Restated
Certificate of Incorporation, as amended, to effect a 1 for 4
reverse stock split, whereby the Company would issue one new share
of Common Stock in exchange for four shares of outstanding Common
Stock.
[_] FOR [_] AGAINST [_] ABSTAIN
<PAGE>
PROPOSAL 3: Conditioned upon approval of Proposal 2, to approve a proposal to
amend the Company's Amended and Restated Certificate of
Incorporation, as amended, to reduce the authorized shares of
Common Stock from 160,000,000 to 80,000,000.
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 4: To increase the number of shares of Common Stock issuable under
the Company's 1997 Incentive and Non-Incentive Stock Option Plan
from 3,000,000 to 5,250,000.
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 5: To ratify the appointment of KPMG LLP as independent auditors of
the Company for the year ending December 31, 2000.
[_] FOR [_] AGAINST [_] ABSTAIN
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE, WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES. THANK YOU.
Signature(s): ___________________________________ Date: _____________________
Note: Please sign exactly as your name appears hereon. If the stock is
registered in the names of two or more persons, each should sign. Executors,
administrators, trustees, guardians and attorneys-in-fact should add their
titles. If signer is a corporation, please give full corporate name and have a
duly authorized officer sign, stating title. If signer is a partnership, please
sign in partnership name by authorized person.
