<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
LXR Biotechnology, 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> 2
[LXR LETTERHEAD]
MAY , 1998
To Our Stockholders:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of LXR Biotechnology Inc. to be held at the Company's offices at 1401 Marina Way
South, Richmond, California, on Thursday June 11, 1998, at 10:00 a.m. P.D.T.
The matters expected to be acted upon at the meeting are described in
detail in the following Notice of Annual Meeting of Stockholders and Proxy
Statement.
It is important that you use this opportunity to take part in the affairs
of your Company by voting on the business to come before this meeting. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. Returning the proxy does not
deprive you of your right to attend the meeting and to vote your shares in
person.
We look forward to seeing you at the meeting.
Sincerely,
L. David Tomei
Chairman of the Board
of Directors
<PAGE> 3
LXR BIOTECHNOLOGY INC.
1401 MARINA WAY SOUTH
RICHMOND, CALIFORNIA 94804
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
Notice is hereby given that the annual meeting of the Stockholders of LXR
Biotechnology, Inc. a Delaware corporation ("LXR" or the "Company"), will be
held at 1401 Marina Way South, Richmond, California 94804 on Thursday, June 11,
1998, at 10:00 a.m. P.D.T. for the following purposes:
1. To elect eight directors of the Company, each to serve until the next
Annual Meeting of Stockholders and until his successor has been elected
and qualified or until his earlier resignation or removal. The Company's
Board of Directors intends to present the following nominees for
election as directors:
<TABLE>
<S> <C>
L. David Tomei Neil Flanzraich
John Kane Brian Brookover
Eugene Eidenberg G. Kirk Raab
William R. Hambrecht Kenneth R. McGuire
</TABLE>
2. To consider and vote upon a proposal to amend the Company's 1993 Stock
Option Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 1,200,000 shares, from 1,849,850 shares to
3,049,850 shares.
3. To consider and vote upon a proposal to amend the Company's Restated
Certificate of Incorporation to increase the number of the Company's
authorized shares of Common Stock from 45 million shares to 60 million
shares.
4. To ratify the selection of KPMG Peat Marwick LLP as independent
accountants for the Company for the current fiscal year.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on April 22, 1998 are entitled to notice of, and to vote at, the
meeting or any adjournment thereof.
By Order of the Board of Directors
Shelli Geer
Chief Financial Officer and Secretary
Richmond, California
May , 1998
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE> 4
LXR BIOTECHNOLOGY INC.
1401 MARINA WAY SOUTH
RICHMOND, CA 94804
------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The accompanying proxy is solicited on behalf of the Board of Directors of
LXR Biotechnology Inc., a Delaware corporation (the "Company" or, "LXR") for use
at the annual meeting of stockholders of the Company to be held on Thursday,
June 11, 1998 at 10:00 a.m., P.D.T., or at any adjournment of the meeting, for
the purposes set forth in this Proxy Statement and in the accompanying Notice of
Annual Meeting of Stockholders. The annual meeting will be held at 1401 Marine
Way South, Richmond, California. The Company's telephone number is (510)
412-9100.
These proxy solicitation materials together with the Company's 1997 Annual
Report are being mailed on or about May 11, 1998, to all stockholders of record
on April 22, 1998.
RECORD DATE
Stockholders of record at the close of business on April 22, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, approximately [ ] shares of the Company's Common
Stock were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a date later than the date
of the Proxy being revoked, or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Only holders of the Company's Common Stock are entitled to one vote for
each share held as of the record date, and do not have cumulative voting rights.
The cost of soliciting proxies will be borne by the Company. Proxies may
also be solicited by certain of the Company's directors, officers and employees,
without additional compensation, personally or by telephone, facsimile or
letter.
QUORUM, ABSTENTIONS, AND BROKER NON-VOTES
The required quorum for the transaction of business at the annual meeting
is a majority of the shares of Common Stock outstanding on the Record Date.
Abstentions are included in the determination of shares present for quorum
purposes. Because abstentions represent shares entitled to vote, the effect of
an abstention will be the same as a vote against a proposal. If shares are held
in "street name" through a broker or other nominee, the broker or nominee may
not be permitted to exercise voting discretion with respect to certain matters
to be acted upon. If the broker or nominee is not given specific instructions,
shares held in the name of such broker or nominee may not be voted on those
matters and will not be considered as present and entitled to vote with respect
to those matters. Shares represented by such "broker non-votes" will, however,
be counted in determining whether there is a quorum.
<PAGE> 5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the meeting, stockholders will elect members of the Company's Board of
Directors (the "Board") to hold office until the next Annual Meeting of
Stockholders and until their respective successors have been elected and
qualified or until any such director's earlier resignation or removal. The size
of the Board is presently set at eight members. Accordingly, eight nominees will
be elected at the Meeting to be the eight directors of the Company. If signed
and returned, shares represented by the accompanying proxy will be voted for the
election of the eight nominees recommended by the Board unless the proxy is
marked in such a manner as to withhold authority so to vote. If any nominee for
any reason is unable to serve or for good cause will not serve, the proxies may
be voted for such substitute nominee as the proxy holder may determine. The
Company is not aware of any nominee who will be unable to or for good cause will
not serve as a director.
DIRECTORS/NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
DIRECTOR DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
L. David Tomei, Ph.D. ............... 53 Chief Executive Officer of the Company and 1996
Chairman of the Board of Directors
Eugene Eidenberg(2)(3)............... 58 Independent Consultant 1994
Neil Flanzraich(3)................... 54 Attorney 1997
Brian Brookover(2)................... 35 Portfolio Manager of Grace Brothers Ltd. 1998
G. Kirk Raab(1)(2)(3)................ 62 Independent Consultant 1998
Kenneth R. McGuire(2)................ 56 President of Burbank Aeronautical Corp. 1997
William R. Hambrecht(1).............. 62 President of W.R. Hambrecht & Co., LLC 1998
John Kane(1)......................... 59 President and Chief Operating Officer of 1998
Cardinal Health, Inc.
</TABLE>
- ---------------
(1) Current member of the Audit Committee.
(2) Current member of the Compensation Committee.
(3) Current member of the Nominating Committee.
L. David Tomei, Ph.D. has been Chief Executive Officer of the Company since
November 1995 and a director since January 1996 and Chairman of the Board of
Directors since August, 1997. From November 1995 until October 1996, Dr. Tomei
was President of the Company. From July 1995 to November 1995, Dr. Tomei was
Acting President and Chief Executive Officer of the Company. Dr. Tomei served as
Executive Vice President, Cell Biology of the Company from September 1992 to
July 1995, and was a director of the Company from October 1992 until April 1993.
Before joining the Company, Dr. Tomei was a research scientist at Ohio State
University from September 1981 until October 1992. Dr. Tomei received a B.S. in
biology and philosophy from Canisius College, an MS in biochemistry from the
State University of New York, Roswell Park Memorial Institute Division, and a
Ph.D. in biochemical pharmacology from the State University of New York at
Buffalo.
Eugene Eidenberg was Chairman of the Board of Directors from October 1994
to August 1997. Since 1995, Mr. Eidenberg has served as Advisory Director of
Hambrecht & Quist LLC in San Francisco, an investment banking firm. In addition,
he is a director of Global Village Communications, Inc. of Sunnyvale,
California. Mr. Eidenberg held senior positions in the federal government,
serving as Secretary to the Cabinet and Assistant to the President during the
Carter Administration. Mr. Eidenberg has a B.A. in political science from the
University of Wisconsin and M.A. and Ph.D. degrees in political science from
Northwestern University.
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<PAGE> 6
Neil Flanzraich is currently a Shareholder and Chairman of the Life
Sciences Group of the law firm of Heller Ehrman White & McAuliffe. Mr.
Flanzraich was General Counsel, Senior Vice President and Secretary of Syntex
(U.S.A.), Inc. a subsidiary of Roche Holding Ltd., from January 1995 to August
1995, General Counsel from January 1992 to December 1994, Co-General Counsel
from August 1987 through January 1992, and Senior Vice President from June 1981
to December 1994 of Syntex Corporation, a pharmaceutical company acquired by
Roche Holding Ltd. at the end of 1994. Mr. Flanzraich also has been a Director
of Whitman Educational Group, Inc., an operator of degree and non-degree
granting post-secondary schools, since 1997. Mr. Flanzraich received his J.D.
from Harvard Law School, and his A.B. from Harvard College.
Brian D. Brookover has been a Portfolio Manager of Grace Brothers, Ltd., a
private investment management firm, which holds approximately 18% of the
outstanding Common Stock of the Company since January 1996. Mr. Brookover also
serves on the Board of Bell Geospace, Inc., a geophysical services company based
in Houston, Texas. He holds a B.S. from University of Pennsylvania's Wharton
School.
G. Kirk Raab served Genetech, Inc. as President, Chief Operating Officer
and Director from 1985 to 1990, and Chief Executive Officer until 1995. Prior to
that, he was President, Chief Operating Officer and Director of Abbott
Laboratories. Mr. Raab currently serves as Chairman of Oxford GlycoSciences,
Ltd., Sharman Pharmaceuticals, Inc. and Connectics Corporation. He also serves
on the Board of Bridge Medical Inc., Accumetrics Inc. and Applied Imaging Inc.
He holds a B.A. from Colgate University.
Kenneth R. McGuire is President of Burbank Aeronautical Corporation,
presently the largest independent supplier of noise suppression equipment to the
commercial airline industry, which he founded in 1988. Mr. McGuire is also a
principal stockholder in a number of biotechnology companies including Neoprobe
Corporation, Molecular Geriatrics Corporation and Third Wave Technologies, Inc.
Mr. McGuire has a B.S. in engineering physics from the United States Naval
Academy and a J.D. from Columbia University School of Law.
William R. Hambrecht is currently President of W.R. Hambrecht & Co., LLC,
an entrepreneurial investment firm in San Francisco. Mr. Hambrecht also served
as Chairman of Hambrecht & Quist, an investment banking firm specializing in
high-growth technology companies, with whom he co-founded with George Quist in
1968. Mr. Hambrecht also serves on the Board of Directors of Adobe Systems Inc.,
Calyx and Corolla. He received his B.A. from Princeton University.
John C. Kane is currently President and Chief Operating Officer of Cardinal
Health, Inc., and has served in that capacity since 1993. Mr. Kane held a number
of responsible operations and management positions at Abbott Laboratories from
1974 to 1993, including Vice President of their Puerto Rico operations, Vice
President, Agriculture and Chemical Products Division. Most recently, he served
as President of the Ross Laboratories Division in Columbus, Ohio. Mr. Kane also
serves on the Board of Connectics Corporation. He holds a B.S. from West Chester
State College.
REQUIRED VOTE
The eight nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them will be elected
as directors.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINATED DIRECTORS.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO 1993 STOCK OPTION PLAN
The Company's Board of Directors approved amendments to the Company's 1993
Stock Option Plan (the "Stock Option Plan") to increase the number of shares of
Common Stock reserved for issuance under the Stock Option Plan by 1,200,000
shares (representing less than 5% of the Company's outstanding Common
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<PAGE> 7
Stock), from 1,849,850 shares to 3,049,850 shares. Stockholder approval of this
amendment is being sought (i) for the purpose of qualifying options to purchase
any of such 1,200,000 shares as incentive stock options (ISOs), as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
(ii) in accordance with the rules of the American Stock Exchange, to permit
listing on that exchange any of such shares purchased by officers, directors or
key employees whether or not the Company could otherwise obtain listing without
such approval. Since there are currently only 59,347 shares remaining available
for as ISOs issuance under the Stock Option Plan, the Board believes that adding
shares to the Stock Option Plan is necessary to permit the Company to continue
to attract and retain quality employees by providing them with appropriate
equity incentives and to remain competitive in the industry.
The Stock Option Plan was adopted by the Board in May 1993 and approved by
the Company's stockholders in August 1993. In April 1995, the Board amended the
Stock Option Plan to increase the number of shares of the Company's Common Stock
authorized for issuance under the Stock Option Plan from 449,850 to 749,850, and
the Company's stockholders approved the amendment at the 1995 Annual Meeting of
Stockholders in June 1995. In February 1996, the Board amended the Stock Option
Plan to increase the number of shares of the Company's Common Stock authorized
for issuance thereunder from 749,850 to 1,049,850, and the Company's
stockholders approved that amendment at the 1996 Annual Meeting of Stockholders
in June 1996. In February 1997, the Board amended the Stock Option Plan to
increase the number of shares of the Company's Common Stock reserved for
issuance thereunder from 1,049,850 to 1,849,850 and the Company's stockholders
approved that amendment at the 1997 Annual Meeting of Stockholders. In March
1998 the Board approved an increase in the number of shares available for
issuance under the Stock Option Plan from 1,849,850 to 3,049,850 that is the
subject of this solicitation, however, none of the additional shares may be
issued as ISOs until stockholder approval has been obtained.
Set forth below is a summary of the principal features of the Stock Option
Plan, which summary is qualified in its entirety by reference to the terms and
conditions of the Stock Option Plan. The Company will provide, without charge,
to each person to whom a proxy statement is delivered, upon request of such
person and by first class mail within one business day of receipt of such
request, a copy of the Stock Option Plan. Any such request should be directed as
follows: Secretary, LXR Biotechnology Inc., 1401 Marina Way South, Richmond,
California 94804; telephone number (510) 412-9100; facsimile (510) 412-9109.
PURPOSE. The purpose of the Stock Option Plan is to provide equity
incentives to assist the Company in recruiting and retaining qualified
employees, officers, directors, consultants, independent contractors and
advisers by granting to such persons options to purchase shares of the Company's
Common Stock.
NUMBER OF SHARES. The maximum number of shares that may be issued pursuant
to options granted under the Stock Option Plan is 3,049,850 shares; provided, no
more than 1,849,850 of such shares may be issued pursuant to ISOs unless the
proposed amendment is approved by the stockholders.
ADMINISTRATION. The Stock Option Plan provides that it may be administered
by the Board or a committee appointed by the Board. Currently, the Stock Option
Plan is administered by the Compensation Committee, the members of which are
appointed by the Board. The Compensation Committee currently consists of Messrs.
McGuire, Eidenberg, Raab, and Brookover, who are members of the Board and are
"non-employee directors" as that term is defined in the rules promulgated under
the Exchange Act. Other than as disclosed in this Proxy Statement, members of
the Compensation Committee have no material relationships with the Company, its
employees or its affiliates. Subject to the terms of the Stock Option Plan, the
Committee determines the optionees, the number of shares subject to each option,
the exercise prices, the exercise periods and the dates of grants; provided,
however, that the Committee has delegated to the Company's Chief Executive
Officer certain limited authority with respect to the grant of options to
persons who are not (a) officers or directors of the Company or (b) persons
whose transactions in the Company's Common Stock are subject to Section 16(b) of
the Exchange Act. The Committee also has the authority to construe and interpret
any of the provisions of the Stock Option Plan or any options granted
thereunder. Such interpretations are binding on the Company and on the
optionees. Because grants under the Stock Option Plan are made at the discretion
of the Committee or, under certain circumstances within preset limitations
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<PAGE> 8
approved by the Board or the Committee, the Chief Executive Officer, future
grants under the Stock Option Plan are not determinable. Options may be granted
under the Stock Option Plan until May 2003.
ELIGIBILITY. All employees, officers, directors, consultants, independent
contractors and advisers of the Company or any parent, subsidiary or affiliate
of the Company are eligible to receive option grants under the Stock Option
Plan. On March 31, 1998, approximately 63 employees were eligible to receive
options under the Stock Option Plan.
Both ISOs and nonqualified stock options ("NQSOs") may be granted under the
Stock Option Plan. The Stock Option Plan limits the aggregate fair market value
(determined as of the time the option is granted) of the shares with respect to
which ISOs are exercisable for the first time by the optionee during any
calendar year to not more than $100,000. There is no similar limit on NQSOs
granted under the Stock Option Plan.
VESTING. Subject to the provisions of the Stock Option Plan, the Committee
may determine the vesting schedule of each option and other terms and conditions
of exercisability under the Stock Option Plan. Options granted under the Stock
Option Plan on or after March 11, 1996 generally vest as to 25% of the shares
after one year and as to 2.083% of the shares monthly thereafter for three
additional years. Options granted under the Stock Option Plan before March 11,
1996 generally vest as to 20% of the shares after one year and as to 1.667% of
the shares monthly thereafter for four additional years.
EXERCISE PERIOD. Options granted under the Stock Option Plan must be
exercised within ten years of the option grant date (or such shorter time as may
be specified in the grant evidencing the option), except that an ISO granted to
a person owing ten percent or more of the total combined voting power of all
classes of stock of the Company or of any parent or subsidiary of the Company (a
"Ten Percent Stockholder") must be exercised within five years of the option
grant date (or such shorter time as may be specified in the grant evidencing the
option).
EXERCISE PRICE. The Committee, or Chief Executive Officer, as applicable,
determines the exercise price of each option granted under the Stock Option
Plan. The exercise price must be at least equal to the Fair Market Value (as
defined in the Stock Option Plan and determined as the closing price of the
Company's Common Stock on the American Stock Exchange on the last trading day
before the date of grant) per share of the Company's Common Stock on the date
the option is granted, except that the exercise price of an option granted to a
Ten Percent Stockholder must be at least equal to 110% of the fair market value
per share on the date of grant. On April 3, 1998, the Fair Market Value of the
Company's Common Stock was $3.4375 per share.
PAYMENT OF EXERCISE PRICE. To exercise an option, the optionee must deliver
to the Company an executed exercise notice and full payment for the shares being
purchased. With respect to all options under the Stock Option Plan as currently
in effect, payment may be made in cash or, where approved by the Committee in
its sole discretion and where permitted by law, by other specified forms of
payment.
TERMINATION OF OPTIONS. Under the Stock Option Plan, if an optionee's
association with the Company is terminated for any reason other than death or
disability, any outstanding option, to the extent (and only to the extent) that
it was exercisable on the date of such termination, may be exercised by the
optionee within the 90 days after such termination (or such shorter time as may
be specified in the grant evidencing the option), but in no event later than the
expiration date of the option. A longer exercise period may apply in the event
of termination of an optionee's association with the Company because of the
optionee's death or disability. If an option granted pursuant to the Stock
Option Plan expires or terminates for any reason without being exercised in
whole or in part, the shares thereby released from such option will again become
available for grant and purchase under other options subsequently granted under
the Stock Option Plan.
ADJUSTMENT OF OPTION SHARES. If the Company issues additional securities to
raise capital or otherwise where consideration is received for the shares, no
adjustment is required in the number of shares or the exercise price per share
for outstanding options under the Stock Option Plan. If the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company
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without consideration, or if a substantial portion of the Company's assets are
distributed, without consideration, to the stockholders of the Company in a
spin-off or similar transaction, the number of shares of Common Stock available
for option grants under the Stock Option Plan and the number of shares and the
exercise price per share for each outstanding option will be proportionately
adjusted, subject to any required action by the Board or stockholders of the
Company.
ASSUMPTION OR SUBSTITUTION OF OPTIONS; EXPIRATION OF OPTIONS NOT ASSUMED OR
SUBSTITUTED. Under the Stock Option Plan, in the event of (i) a merger or
consolidation in which the Company is not the surviving corporation (with
certain exceptions), (ii) a dissolution or liquidation of the Company, (iii) the
sale of substantially all of the assets of the Company, or (iv) any other
transaction which qualifies as a "corporate transaction" under Section 424(a) of
the Code wherein the stockholders of the Company give up all of their equity
interest in the Company (except for an acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company), any or all
outstanding options may be assumed or replaced by the successor corporation. In
the alternative, the successor corporation may substitute an equivalent option
or provide substantially similar consideration to optionees as was provided to
stockholders (after taking into account the existing provisions of the
optionee's options, such as the exercise price and the vesting schedule). The
successor corporation may also issue, in place of outstanding shares of the
Company held by an optionee as a result of the exercise of an option that is
subject to repurchase, substantially similar shares or other property subject to
similar repurchase restrictions no less favorable to the optionee. In the event
such successor corporation, if any, refuses to assume or substitute options, as
described above, pursuant to a transaction described above, or there is no
successor corporation, and if the Company is ceasing to exist as a separate
corporate entity, the options will expire on a date at least 20 days after the
Board gives written notice to the optionee specifying the terms and conditions
of such termination.
AMENDMENT AND TERMINATION OF THE STOCK OPTION PLAN. The Committee may amend
or terminate the Stock Option Plan at any time and in any respect, including
modifying the form of the grant or the exercise notice, except that the
Committee cannot, without the approval of the stockholders of the Company, make
changes which would require stockholder approval under the Internal Revenue
Code. No amendment of the Stock Option Plan may adversely affect any outstanding
option or unexercised portion thereof without the optionee's written consent.
OUTSTANDING OPTIONS UNDER THE STOCK OPTION PLAN. The following information
with respect to outstanding options under the Stock Option Plan is provided as
of March 31, 1998. A total of 73 persons held options under the Stock Option
Plan to purchase an aggregate of 1,763,776 shares of Common Stock, with a
weighted average exercise price of $2.049 per share, and there were 59,347
shares of Common Stock available for future grants under the Stock Option Plan.
Over the term of the Stock Option Plan, the following Named Executive Officers
(as defined in "Executive Compensation," below) have been granted options to
purchase shares of Common Stock under the Stock Option Plan: L. David Tomei,
Ph.D., 418,800 shares; Donald A. Picker, 160,000 shares; Mark J. Tomei, 65,000
shares; Ian C. Bathurst, Ph.D., 8,525 shares; Michael C. Kiefer, Ph.D., 108,500
shares; and Samuil R. Umansky, M.D., Ph.D., D.S.C., 125,000 shares. Current
executive officers as a group (including Shelli J. Geer and Lawrence Rosania,
and excluding Mark Tomei and Ian Bathurst) have been granted options to purchase
987,300 shares. All employees as a group, other than executive officers whether
or not issued, have been granted options to purchase 685,523 shares. In
addition, the following directors and executive officers have been granted
non-qualified stock options outside the Stock Option Plan (but on substantially
the same terms as options under the plan): G. Kirk Raab, 250,000 shares; Donald
Picker, 150,000 shares; and 40,000 shares each to Eugene Eidenberg, William
Hambrecht, Neil Flanzraich, and John Kane. All of the foregoing outstanding
options (whether or not issued under the Stock Option Plan) expire from 2003 to
2008 (subject to earlier termination if an optionee's relationship with the
Company terminates).
NEW PLAN BENEFITS. The amounts of future option grants under the Stock
Option Plan to (i) the Company's Chief Executive Officer, (ii) the Company's
four most highly compensated executive officers (other than the Chief Executive
Officer) who were serving as executive officers at the end of fiscal 1997, (iii)
all current executive officers as a group, (iv) all current directors who are
not executive officers as a
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group, and (v) all employees, including all officers who are not executive
officers, as a group, are not determinable because, under the terms of the Stock
Option Plan, such grants are made in the discretion of the Committee or its
designees. Future option exercise prices under the Stock Option Plan are not
determinable because they are based upon the fair market value of the Company's
Common Stock on the date of grant.
CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION
THE FOLLOWING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS BASED UPON
EXISTING STATUTES, REGULATIONS AND INTERPRETATIONS THEREOF. THE APPLICABLE RULES
ARE COMPLEX, AND INCOME TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH PLAN PARTICIPANT. THIS PROXY STATEMENT DESCRIBES FEDERAL
INCOME TAX CONSEQUENCES OF GENERAL APPLICABILITY BUT DOES NOT PURPORT TO
DESCRIBE PARTICULAR CONSEQUENCES TO EACH INDIVIDUAL PLAN PARTICIPANT OR FOREIGN,
STATE OR LOCAL INCOME TAX CONSEQUENCES, WHICH MAY DIFFER FROM UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES.
INCENTIVE STOCK OPTIONS
Award; Exercise. ISOs are intended to constitute "incentive stock options"
within the meaning of Section 422 of the Code. ISOs may be granted only to
employees of the Company (including directors who are also employees). An
optionee does not recognize taxable income upon either the grant or exercise of
an ISO. However, the excess of the fair market value of the shares purchased
upon exercise over the option exercise price (the "Option Spread") is includable
in the optionee's "alternative minimum taxable income" ("AMTI") for purposes of
the alternative minimum tax ("AMT"). The Option Spread is generally measured on
the date of exercise and is includable in AMTI in the year of exercise. Special
rules regarding the time of AMTI inclusion may apply for shares subject to a
repurchase right or other "substantial risk of forfeiture" (including, in the
case of each person subject to the reporting requirements of Section 16 of the
Exchange Act, limitations on resale of shares imposed under Section 16(b) of the
Exchange Act).
Sale of Option Shares. If an optionee holds the shares purchased under an
ISO for at least two years from the date the ISO was granted and for at least
one year from the date the ISO was exercised, any gain from a sale of the shares
other than to the Company is taxable as long-term capital gain. Under these
circumstances, the Company would not be entitled to a tax deduction at the time
the ISO is exercised or at the time the stock is sold. If an optionee were to
dispose of stock acquired pursuant to an ISO before the end of the required
holding periods (a "Disqualifying Disposition"), the amount by which the market
value of the stock at the time the ISO is exercised exceeds the exercise price
(or, if less, the amount of gain realized on the sale) is taxable as ordinary
income, and the Company is entitled to a corresponding tax deduction. Such
income is subject to information reporting requirements and may become subject
to income and employment tax withholding. Gain from a Disqualifying Disposition
in excess of the amount required to be recognized as ordinary income is capital
gain. Optionees are required to notify the Company immediately prior to making a
Disqualifying Disposition. If stock is sold to the Company rather than to a
third party, the sale may not produce capital gain or loss. A sale of shares to
the Company will constitute a redemption of such shares which could be taxable
as a dividend unless the redemption is "not essentially equivalent to a
dividend" within the meaning of the Code. The timing and amount of income from a
Disqualifying Disposition and the beginning of the optionee's holding period for
determining whether capital gain or loss is long- or short-term may be affected
if option stock is acquired subject to a repurchase right or other "substantial
risk of forfeiture" (including in the case of each person subject to the
reporting requirements of Section 16 of the Exchange Act, limitations on resale
of shares imposed under Section 16(b) of the Exchange Act).
Exercise with Stock. If an optionee pays for ISO shares with shares of the
Company acquired under an ISO or a qualified employee stock purchase plan
("statutory option stock"), the tender of shares is a Disqualifying Disposition
of the statutory option stock if the above described (or other applicable)
holding periods respecting those shares have not been satisfied. If the holding
periods with respect to the statutory option stock are satisfied, or the shares
were not acquired under a statutory stock option of the Company, then
7
<PAGE> 11
any appreciation in value of the surrendered shares is not taxable upon
surrender. Special basis and holding period rules apply where previously owned
non-statutory option stock is used to exercise an ISO.
NONQUALIFIED STOCK OPTIONS
Award; Exercise. An optionee is not taxable upon the award of a NQO.
Federal income tax consequences upon exercise will depend upon whether the
shares thereby acquired are subject to a "substantial risk of forfeiture." If
the shares are not subject to a substantial risk of forfeiture, or if they are
so restricted and the optionee files an election under Section 83(b) of the Code
(a "Section 83(b) Election") with respect to the shares, the optionee will have
ordinary income at the time of exercise measured by the Option Spread on the
exercise date. The optionee's tax basis in the shares will be the fair market
value of the shares on the date of exercise, and the holding period for purposes
of determining whether capital gain or loss upon sale is long- or short-term
also will begin on or immediately after that date. If the shares are subject to
a substantial risk of forfeiture and no Section 83(b) Election is filed, the
optionee will not be taxable upon exercise, but instead will have ordinary
income on the date the restrictions lapse, in an amount equal to the difference
between the amount paid for the shares under the NQO and their fair market value
as of the date of lapse; in addition, the optionee's holding period will begin
on the date of the lapse.
Whether or not the shares are subject to a substantial risk of forfeiture,
the amount of ordinary income taxable to an optionee who is an employee at the
time of grant constitutes "supplemental wages" subject to withholding of income
and employment taxes by the Company, and the Company receives a corresponding
income tax deduction.
Sale of Option Shares. Upon sale, other than to the Company, of shares
acquired under a NQO, an optionee generally will recognize capital gain or loss
to the extent of the difference between the sale price and the optionee's tax
basis in the shares, which will be long-term gain or loss if the employee's
holding period in the shares is more than one year. Certain reduced capital
gains rates apply if the shares are held for longer periods. If stock is sold to
the Company, rather than to a third party, the sale may not produce capital gain
or loss. A sale of shares to the Company will constitute a redemption of such
shares, which could be taxable as a dividend unless the redemption is "not
essentially equivalent to a dividend" within the meaning of the Code.
Exercise with Stock. If an optionee tenders Common Stock to pay all or part
of the exercise price of a NQO, the optionee will not have a taxable gain or
deductible loss on the surrendered shares. Instead, shares acquired upon
exercise that are equal in value to the fair market value of the shares
surrendered in payment are treated as if they had been substituted for the
surrendered shares, taking as their basis and holding period the basis and
holding period that the optionee had in the surrendered shares. The additional
shares are taxable to the optionee and are treated as newly acquired with a
basis equal to their fair market value on the date of exercise.
If the surrendered shares are statutory option stock as described above
under "Incentive Stock Options", with respect to which the applicable holding
period requirements for favorable income tax treatment have not expired, then
the newly acquired shares substituted for the statutory option shares should
remain subject to the federal income tax rules governing the surrendered shares,
but the surrender should not constitute a Disqualifying Disposition of the
surrendered stock.
Erisa Information. The Company believes that the Stock Option Plan is not
subject to any of the provisions of the Employment Retirement Income Security
Act of 1974, as amended ("ERISA").
SPECIAL FEDERAL INCOME TAX CONSIDERATION DUE TO SHORT SWING PROFIT RULE
The potential liability of a person subject to Section 16 of the Exchange
Act to repay short-swing profits from the resale of shares acquired under a
Company plan constitutes a "substantial risk of forfeiture" within the meaning
of the above-described rules, which is generally treated as lapsing at such time
as the potential liability under Section 16 lapses. Persons subject to Section
16 who would be required by Section 16 to repay profits from the immediate
resale of stock acquired under a Company plan should consider whether to file a
8
<PAGE> 12
Section 83(b) Election at the time they acquire stock under a Company plan in
order to avoid deferral of the date that they are deemed to acquire shares for
federal income tax purposes.
REQUIRED VOTE
Approval of the amendment to the 1993 Stock Option Plan requires the
affirmative vote of a majority of the votes cast by stockholders who are present
or represented at a duly held stockholders meeting at which a quorum of the
voting power is represented.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE AMENDMENT TO THE STOCK OPTION PLAN.
PROPOSAL 3
APPROVAL OF THE AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
DESCRIPTION OF THE AMENDMENT
At the Annual Meeting, the stockholders are being asked to approve an
amendment to the Company's Restated Certificate of Incorporation to increase the
number of authorized shares of Common Stock by 15,000,000 shares (the
"Amendment"). The Company's Restated Certificate of Incorporation currently
authorizes the issuance of 45,000,000 shares of Common Stock, with a par value
of $.0001 per share, and 5,000,000 shares of Preferred Stock, with a par value
of $.01 per share. In March 1998 the Board of Directors adopted a resolution
approving an amendment to the Restated Certificate of Incorporation to increase
the authorized number of shares of Common Stock to 60,000,000, subject to
stockholder approval. Since the Company's Restated Certificate of Incorporation
also authorizes 5,000,000 shares of Preferred Stock, the Amendment will have the
effect of increasing the total number of shares of capital stock authorized for
issuance from 50,000,000 to 65,000,000 shares. Stockholders are invited to read
the Certificate of Amendment to the Restated Certificate of Incorporation (the
"Certificate"), a copy of which can be obtained from the Company by contacting
the Company at its corporate headquarters, Attention: Corporate Secretary.
PURPOSE AND EFFECT OF THE PROPOSED AMENDMENT
As of March 31, 1998, the Company had approximately 28,363,656 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding, and as of
that date, the Company had approximately 2,049,850 shares of Common Stock
reserved for issuance under options granted pursuant to the Company's stock
option plans. The Company also had, as of such date, 1,689,958 shares of Common
Stock reserved for issuance upon exercise of outstanding warrants.
In addition to the foregoing, the Board considers it advisable to have
additional authorized, but unissued shares of Common Stock available to allow
the Company to act promptly with respect to possible future financings, possible
stock dividends, possible acquisitions, additional issuances under the Company's
employee benefit plans and for other corporate purposes approved by the Board.
Having additional authorized shares of Common Stock available for issuance in
the future would give the Company greater flexibility and allow shares of Common
Stock to be issued without the expense or delay of a stockholders' meeting,
except as may be required by applicable laws or regulations. Other than for
issuance under the Company's employee benefit plans and currently outstanding
warrants and convertible securities, the Company has no specific plans for the
issuance of additional shares of Common Stock.
Under the Company's Restated Certification of Incorporation, the Company's
stockholders do not have preemptive rights with respect to the Common Stock.
Thus, should the Board of Directors elect to issue additional shares of Common
Stock, existing stockholders would not have any preferential rights to purchase
such shares. In addition, if the Board of Directors elects to issue additional
shares of Common Stock, such issuance could have a dilutive effect on the
earnings per share, voting power and shareholdings of current stockholders.
9
<PAGE> 13
The proposed amendment to increase the authorized number of shares of
Common Stock could, under certain circumstances, have an anti-takeover effect,
although this is not the intention of this proposal. In the event of a hostile
takeover attempt to take over control of the Company, it may be possible for the
Company to endeavor to impede the attempt by issuing shares of the Common Stock,
thereby diluting the voting power of the other outstanding shares and increasing
the potential cost to acquire control of the Company. The proposed amendment,
therefore, may have the effect of discouraging unsolicited takeover attempts. By
potentially discouraging initiation of any such unsolicited takeover attempt,
the proposed Amendment may limit the opportunity for the Company's stockholders
to dispose of their shares at the higher price generally available in takeover
attempts or that may be available under a merger proposal. The proposed
amendment may have the effect of permitting the Company's current management,
including the current Board of Directors, to retain its position, and place it
in a better position to resist changes that stockholders may wish to make if
they are dissatisfied with the conduct of the Company's business. However, the
Board of Directors is not aware of any attempt to take control of the Company
and the Board of Directors has not presented this proposal with the intent that
it be utilized as a type of anti-takeover device.
REQUIRED VOTE
Approval of the Amendment to the Certificate of Incorporation will require
the affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THE SHAREHOLDERS VOTE FOR THE
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION.
PROPOSAL 4
RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT
ACCOUNTANTS FOR THE CURRENT FISCAL YEAR
The Company has selected KPMG Peat Marwick LLP as its independent
accountants to perform the audit of the Company's financial statements for 1998,
and the stockholders are being asked to ratify such selection. Representatives
of KPMG Peat Marwick LLP will be present at the meeting, will have the
opportunity to make a statement at the meeting if they desire to do so and will
be available to respond to appropriate questions.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the votes cast by
stockholders who are present or represented at a duly held stockholders meeting
at which a quorum of the voting power is represented is required to approve the
appointment of the independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE SELECTION OF THE INDEPENDENT ACCOUNTANTS.
10
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 1998,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each stockholder known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock, (ii) each director, (iii) each executive officer
named in the summary Compensation Table under the caption "Executive
Compensation" below and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(%)(1)(2)
------------------------ ------------ --------------
<S> <C> <C>
Grace Brothers, Ltd. (3)................................... 5,145,034 18.14%
Kenneth R. McGuire(4)...................................... 4,251,584 14.99%
3000 North Clybourn, Hanger 34
Burbank, CA 91505
William Hambrecht(5)....................................... 571,429 2.01%
L. David Tomei, Ph.D.(6)................................... 474,999 1.65%
Mark J. Tomei(7)........................................... 422,098 1.48%
Ian Bathurst, Ph.D.(8)..................................... 101,025 *
Eugene Eidenberg (9)....................................... 47,582 *
Michael Kiefer, Ph.D.(10).................................. 42,412 *
Jack H. Watson, Jr.(11).................................... 50,000 *
Samuil Umansky, M.D., Ph.D., D.Sc.(12)..................... 29,125 *
Donald H. Picker, Ph.D.(13)................................ 122,700 *
Neil Flanzraich............................................
G. Kirk Raab(14)........................................... 66,666
Brian Brookover(15)........................................ 150,000 *
All directors and executive officers as a group (14
persons)(16)............................................. 6,294,664 22.19%
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Beneficial ownership is determined in accordance with Rule 13d-3. In
computing the number of shares beneficially owned by a person and the
percentage of ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of March 31, 1998 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of each other person. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
(2) Percentage of beneficial ownership is based on 28,363,656 shares of Common
Stock outstanding as of March 31, 1998.
(3) Based on the Schedule 13(g)(A) filed with the SEC on January 15, 1998 by
Grace Brothers, Ltd.
(4) Based on the Amended Forms 3 and 4 filed with the SEC on March 6, 1998 by
Kenneth R. McGuire. Includes a warrant for 8,000 shares of Common Stock
held by Mr. McGuire that is immediately exercisable.
(5) Based on Form 4 filed with the SEC and February 2, 1998 by William
Hambrecht.
(6) Includes 40,000 shares held by Guarantee Trust Co. TTEEFBO L.D. Tomei and
7,709 shares subject to options exercisable within 60 days of March 31,
1998.
(7) Includes 2,501 shares subject to options exercisable within 60 days of
March 31, 1998, and 18,650, 30,000, and 30,000 shares held by Mr. Tomei as
custodian for the benefit of Sophia A. Tomei, Frances F. Tomei and Andrew
R. Tomei, respectively, Mr. Tomei's minor children.
11
<PAGE> 15
(8) Dr. Bathurst was Vice President, Manufacturing and Process Development of
the Company before resigning in January 1998.
(9) Includes 834 shares subject to options exercisable within 60 days of March
31, 1998. Also includes 35,000 shares held of record by the E. Eidenberg
and A.C. Martin Revocable Trust.
(10) Includes 1,192 shares subject to options exercisable within 60 days of
March 31, 1998.
(11) Includes 15,833 shares which vested immediately upon Mr. Watson's
resignation from the Company.
(12) Includes 1,459 shares subject to options exercisable within 60 days of
March 31, 1998.
(13) Includes 12,915 shares subject to options exercisable within 60 days of
March 31, 1998.
(14) Includes 11,111 shares subject to options exercisable within 60 days of
March 31, 1998.
(15) Based on Form 3 filed with the SEC on January 22, 1998 by Brian Brookover.
Mr. Brookover is the Portfolio Manager of Grace Brothers, Ltd.
(16) Includes the shares stated to be subject to options exercisable within 60
days in footnotes (6), (7) and (9)-(14).
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board met seven times, including telephone conference meetings, during
1997, and acted by written consent three times. No director attended fewer than
75% of the aggregate of the total number of meetings of the Board (held during
the period for which he was a director) and the total number of meetings held by
all committees of the Board on which he served (during the period that he
served).
Standing committees of the Board include an Audit Committee, a Compensation
Committee, and a Nominating Committee.
Messrs. Hambrecht, Raab and Kane are the current members of the Company's
Audit Committee. The Audit Committee met once during 1997. The Audit Committee
reviews the Company's accounting practices, internal control systems and
Securities and Exchange Commission ("SEC") filings. The Audit Committee also
meets with the Company's outside auditors concerning the scope and terms of
their engagement and the results of their audits.
Messrs. McGuire, Eidenberg, Raab, and Brookover are the current members of
the Company's Compensation Committee. The Compensation Committee met once during
1997. The Compensation Committee recommends compensation for officers and
employees of the Company, grants options and stock awards under the Company's
1993 Stock Option Plan, as amended, and reviews and recommends adoption of and
amendments to stock option and employee benefit plans.
Messrs. Eidenberg, Flanzraich, and Raab are the current members of the
Company's Nominating Committee. The Nominating Committee was created at the
March 1998 Meeting of the Board of Directors, and as such, did not meet during
1997. The Nominating Committee will be responsible for reviewing potential
candidates for service on the Board of Directors.
12
<PAGE> 16
EXECUTIVE OFFICERS
The names of the present executive officers of the Company and certain
information about them are set forth below:
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER AGE PRINCIPAL OCCUPATION
------------------------- --- --------------------
<S> <C> <C>
L. David Tomei, Ph.D................... 53 Chairman and Chief Executive Officer
Donald H. Picker, Ph.D................. 52 President and Chief Operating Officer
Shelli J. Geer, C.P.A.................. 33 Chief Financial Officer, Secretary and
Vice President, Finance and
Administration
Michael C. Kiefer, Ph.D................ 45 Vice President, Molecular Biology
Samuil R. Umansky, M.D., Ph.D., 56 Chief Scientific Officer and Vice
D.Sc................................. President, Molecular Pharmacology
Lawrence J. Rosania.................... 47 Vice President, Regulatory and Clinical
Affairs
</TABLE>
Additional information with respect to Dr. Picker, Ms. Geer, Dr. Kiefer,
Mr. Rosania and Dr. Umansky is set forth below. Information with respect to Dr.
Tomei, is set forth above under "Directors/Nominees."
Donald H. Picker, Ph.D. was appointed President and Chief Operating Officer
in October 1996. Dr. Picker was Chief Operating Officer of Corvas International,
Inc., a biotechnology company, from March 1996 to June 1996. Prior to that, Dr.
Picker served as Senior Vice President, Research & Development, at Genta, Inc.,
an antisense technology company, from November 1991 to February 1996. Dr. Picker
received a B.S. in chemistry from Brooklyn Polytechnic Institute and a Ph.D. in
organic chemistry from the State University of New York at Albany.
Shelli Geer was appointed Chief Financial Officer and Secretary in November
1997, and was appointed Vice President, Finance and Administration in October
1996. Ms. Geer was the Company's Controller from September 1994 through November
1997. Prior to joining the Company, Ms. Geer was an accountant with KPMG Peat
Marwick LLP since July 1988, most recently as Audit Manager. Ms. Geer received a
B.S. in Business Administration from California State University at Chico and is
a Certified Public Accountant in the State of California.
Michael C. Kiefer, Ph.D., was appointed Vice President, Molecular Biology
of the Company in January 1996. He served as Senior Scientist of the Company
from March 1993 to February 1995 and as a Director of Molecular Biology from
March 1995 to January 1996. Prior to joining the Company, Dr. Kiefer was a
Senior Scientist at Chiron, where he worked on the molecular biology of bone
growth and differentiation factors and related processes from July 1987 to March
1993. Dr. Kiefer has published over 60 articles in the area of molecular
biology. Dr. Kiefer received a B.S. in zoology and a Ph.D. in biochemistry from
the University of California at Davis.
Samuil R. Umansky, M.D., Ph.D., D.Sc., was appointed to be Chief Scientific
Officer in August 1997, and has also been Vice President, Molecular Pharmacology
since January 1996. From February 1993 to January 1996, he served as Director of
Cell Biology. Prior to joining the Company, Dr. Umansky was a professor at the
Institute of Biological Physics, the USSR Academy of Science from 1968 to 1993.
In 1987, Dr. Umansky was awarded the Soviet State Prize for his work in the
field of radiation treatment induced cell death and is recognized
internationally for his research on apoptosis. He is a founder of the USSR
Radiobiological Society and a member of the Radiological Scientific Council of
the USSR Academy of Sciences. Dr. Umansky has published numerous articles in
both Soviet and Western journals, including the first description of
apoptosis-related DNA fragmentation. Dr. Umansky holds an M.D., a Ph.D., and a
Doctorate of Science in radiation biology from the highest committee of
Attestation of Scientists, awarded on the basis of his studies at the Institute
of Biological Physics, the USSR Academy of Science.
Lawrence J. Rosania was appointed Vice President of Regulatory and Clinical
Affairs in February 1998. Before joining LXR, he had been Vice President,
Regulatory Affairs, for Athena Neurosciences Inc. since 1996. Formerly, Mr.
Rosania was Director, Regulatory Affairs and Quality Assurance for Novo Nordisk
13
<PAGE> 17
Pharmaceuticals from 1992 to 1996. He was also Assistant Director, Worldwide
Regulatory Affairs, for Bristol-Myers Squibb from 1988 to 1992, and Manager of
Drug Regulatory Affairs for E.R. Squibb & Sons from 1986 to 1988. Mr. Rosania
received a B.A. in biology from Temple University and a M.S. in chemistry from
Drexel University.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to or earned or
paid for services rendered in all capacities to the Company and its subsidiary
during each of 1995, 1996 and 1997 by (i) the Company's Chief Executive Officer
and (ii) the Company's most highly compensated executive officers, other than
the Chief Executive Officer, who were serving as executive officers at the end
of 1997 and whose individual aggregate annual salary and bonus exceeded $100,000
(the persons referred to in clauses (i) and (ii) above are collectively referred
to as the "Named Executive Officers"). This information includes the dollar
values of base salaries and bonus awards, the number of shares subject to stock
options granted and certain other compensation, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARD
------------------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
--------------------------- ----- ---------- -------- ----------
<S> <C> <C> <C> <C>
L. David Tomei, Ph.D.(1).................. 1997 $240,000 $40,000 58,800
Chief Executive Officer 1996 186,921 $80,000(1) 165,000
1995 145,000 -- 110,000
Donald H. Picker, Ph.D.................... 1997 $225,000 $75,617(2) --
President & Chief Operating Officer 1996 48,606 15,000 310,000
Ian C. Bathurst, Ph.D..................... 1997 $120,000 $20,000 24,000
Vice President, Manufacturing and 1996 104,370 3,300 15,000
Process Development 1995 92,472 -- 6,000
Michael C. Kiefer, Ph.D................... 1997 $120,000 $15,000 20,000
Vice President, Molecular Biology 1996 97,103 3,300 15,000
1995 84,000 -- 17,000
Samuil R. Umansky, M.D., Ph.D.,........... 1997 $120,000 $15,000 20,000
D.Sc., Vice President, Molecular 1996 97,103 3,300 15,000
Pharmacology 1995 83,869 -- 25,000
Mark J. Tomei............................. 1997 $145,000 -- --
1996 145,000 $76,000 40,000
1995 145,000 -- 25,000
</TABLE>
- ---------------
(1) Includes $40,000 paid in 1996 in connection with services rendered in 1995.
(2) Includes $12,704 in reimbursement for temporary travel and other expenses,
$52,394 in rent and taxes, $2,308 in utilities and taxes, and $8,211 in
moving expenses.
14
<PAGE> 18
OPTION INFORMATION
The following table sets forth further information regarding individual
grants of stock options during fiscal 1997 to each Named Executive Officer. All
such options were granted pursuant to the Stock Option Plan.
OPTION GRANTS IN FISCAL 1997
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION
NAME (#)(1) FISCAL 1997(2) ($/SH)(3) DATE(4)
---- --------------------- ---------------- --------- ----------
<S> <C> <C> <C> <C>
L. David Tomei, Ph.D................ 58,800 13.8 1.875 8/12/07
Ian C. Bathurst, Ph.D............... 24,000 5.7 1.875 8/12/07
Michael C. Kiefer, Ph.D............. 20,000 4.7 1.875 8/12/07
Samuil R. Umansky,
M.D., Ph.D., D.Sc................. 20,000 4.7 1.875 8/12/07
Donald Picker....................... -- -- -- --
Mark Tomei.......................... -- -- -- --
</TABLE>
- ---------------
(1) Generally, options granted on or after March 11, 1996 become exercisable
with respect to 25% of the shares after one year from date of grant and with
respect to 2.083% of the shares for each full month thereafter that the
optionee renders services to the Company.
(2) The Company granted options to purchase 424,550 shares of the Company's
Common Stock to employees in 1997.
(3) Stock options are awarded with an exercise price equal to the Fair Market
Value of the Company's Common Stock on the date of grant, which is defined
in the Stock Option Plan as the closing price of the Company's Common Stock
on the American Stock Exchange on the last trading day before the date of
grant.
(4) Options generally expire ten years from the date of grant or at the time of
the optionee's termination of employment or consulting relationship with the
Company.
In addition to the above options granted to Named Executive Officers in
fiscal 1997, the Company granted options to purchase a total of 310,000 shares
to Donald H. Picker, Ph.D. in October 1996, when Dr. Picker joined the Company
as President and Chief Operating Officer. Such options were exercisable at
$2.0625 per share, expire on October 13, 2006 and represent 44.7% of the total
options granted to employees of the Company in fiscal 1996. Options to purchase
160,000 shares were granted as ISOs under the Stock Option Plan, and options to
purchase 150,000 shares were granted outside of the Stock Option Plan but have
the same terms as options granted under the Stock Option Plan.
15
<PAGE> 19
The following table sets forth certain information concerning the number
and aggregate value of unexercised options held at December 31, 1997 by each
Named Executive Officer. There were no option exercises during 1997 by any Named
Executive Officer.
OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END(1)($)
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
L. David Tomei, Ph.D. .................. 255,727 163,073 215,598 58,802
Ian C. Bathurst, Ph.D. ................. 8,113 36,887 2,728 16,021
Michael C. Kiefer, Ph.D. ............... 12,933 39,067 3,029 12,658
Samuil R. Umansky, M.D., Ph.D., D.Sc.... 25,194 43,306 26,427 19,754
Donald H. Picker, Ph.D. ................ 90,414 219,586 28,254 302,374
Mark Tomei.............................. 25,832 39,168 9,374 13,125
</TABLE>
- ---------------
(1) Calculated on the basis of the closing price of the Company's Common Stock
on the American Stock Exchange on December 31, 1997 ($2.375 per share).
COMPENSATION OF DIRECTORS
During 1997, Mr. Watson received $500 for Board meetings attended in
person, and Mr. Eidenberg was compensated in the amount of approximately $28,000
for services as Board member and consultant to the Company. Dr. Tomei, Dr.
Picker, Mr. McGuire, Mr. Flanzraich and Mr. Tomei did not receive any additional
compensation for their services as directors. See "Executive Compensation" above
for information with respect to compensation paid during 1997 to Dr. Tomei,
Donald Picker and Mr. Tomei. See "Compensation and Severance Agreements" below
for information with respect to compensation paid to Dr. Picker. In addition,
each director was reimbursed for actual business expenses incurred in attending
each Board meeting. Each outside director also receives an annual option grant
to purchase 5,000 shares of Common Stock pursuant to the Company's 1993
Directors Stock Option Plan as a result of his appointment and subsequent
service as a director. Each person who becomes Chairman of the Board in the
future will receive an additional, one-time option grant to purchase 10,000
shares of Common Stock as of the date such person becomes Chairman of the Board.
Further, the Board has decided to grant each director who is not an employee or
substantial stockholder an option to acquire 40,000 shares upon joining the
Board; the Board has also decided to grant every director an additional 10,000
options at the end of each full year of service on the Board. The Company
intends to grant such options outside of the 1993 Stock Option Plan but will
have substantially the same terms as the options granted under the 1993 Stock
Option Plan.
COMPENSATION AND SEVERANCE AGREEMENTS
In October 1996, the Company entered into an employment agreement with
Donald H. Picker, Ph.D., its President and Chief Operating Officer. Under the
agreement, Dr. Picker received an initial annual salary of $225,000 and one-time
recruitment bonus of $15,000. Dr. Picker also received an option to purchase
310,000 shares of the Company's Common Stock. Options to purchase 160,000 shares
were granted under the Stock Option Plan, and options to purchase 150,000 shares
were granted outside of the Stock Option Plan but have the same terms as options
granted under the Stock Option Plan. See "Option Information" above. The Company
has agreed to cover Dr. Picker's relocation costs and miscellaneous expenses
during the transition period. Dr. Picker has agreed to reimburse the Company for
all or a portion of the relocation expenses and the recruitment bonus if he
voluntarily terminates his employment with the Company within two years. The
Company has also agreed to provide Dr. Picker with a home loan of $175,000,
which may be forgiven over an eight year period in the amount of $25,000 per
year beginning December 31, 1997, subject to certain conditions. As of December
31, 1997, the Company had advanced $175,000 under this agreement, of which
$25,000 was forgiven in January 1998. In addition, during fiscal year 1997, the
Company paid $8,217 toward
16
<PAGE> 20
moving expenses, and $67,400 toward Dr. Picker's temporary living expenses under
this agreement. The balance of the loan will become due and payable if Dr.
Picker resigns or is terminated for cause.
If the Company terminates Dr. Picker without cause, he will be entitled to
receive severance equal to one year's salary.
In November 1996, the Company amended the existing employment agreement
with L. David Tomei, Ph.D., the Company's Chief Executive Officer (the
"Employment Agreement"). The Employment Agreement, which supersedes Dr. Tomei's
previous employment agreement with the Company, has a term of three years and
provides for base compensation to Dr. Tomei in the amount of $240,000, effective
as of January 1, 1997. In addition, the Employment Agreement provides that Dr.
Tomei will be eligible for an annual cash bonus of $40,000 based on achievement
of specific annual goals established by Dr. Tomei and the Board and annual stock
option awards in connection with the Board's annual review of the Company's
performance. Either the Company or Dr. Tomei may terminate the Employment
Agreement upon 30 days' notice. If the Company terminates the Employment
Agreement without cause, Dr. Tomei is entitled to severance compensation in the
amount of twice his annual compensation. In connection with the Employment
Agreement, the Company granted Dr. Tomei a $40,000 bonus and, as of August 13,
1997, granted Dr. Tomei an option to purchase 58,800 shares of the Common Stock
pursuant to the terms of the Stock Option Plan, exercisable at $1.8750 per
share.
On January 1, 1995, the Company entered into an Independent Consultant
Agreement with Mark J. Tomei (the "Consultant Agreement"). The Consultant
Agreement, which superseded Mr. Tomei's previous employment agreement with the
Company, had a term of five years and provided for compensation to Mr. Tomei in
the amount of $145,000 per year. In February 1998 the Consultant Agreement was
terminated and, in accordance with the terms of the agreement, the Company
agreed to a severance package consisting of Common Stock and cash valued at
approximately $290,000.
On February 13, 1998, the company entered into a consultant agreement (the
"Consultant Agreement") with G. Kirk Raab, which provides for compensation
consisting of an option to purchase 250,000 shares of Common Stock (the "Stock
Option"). According to the vesting schedule in the Consultant Agreement, 1/5 of
the shares vested on the close of business of the effective date of the
Consultant Agreement (the "Effective Date"), and thereafter the remaining stock
will vest at a rate of 1/36 per month for every month. If the Company enters
into a cooperative development agreement or other strategic alliance with a
significant pharmaceutical or biotechnology company relating to one or more of
the Company's products, and the Board of Directors determines that the
consultant contributed to the development in some significant way, then 100,000
shares of the Stock Option vest immediately.
CERTAIN TRANSACTIONS
COMPENSATION AND OTHER TRANSACTIONS WITH OFFICERS AND DIRECTORS
For information concerning compensation and severance agreements between
the Company and each of certain executive officers, see "Executive Compensation"
and "Compensation and Severance Agreements" above.
FINANCING TRANSACTIONS
In December 1997 and January 1998, the Company sold 5,714,286 shares of
common stock at $1.75 per share through a series of private placement offerings
(the "Private Placements"), aggregating $10 million in total gross proceeds and
approximately $9.4 million in net proceeds. In February 1998, the Company sold
to William R. Hambrecht an additional 571,429 shares of the Company's Common
Stock through a private placement offering at a price of $1.75 per share. As a
result of the Private Placements, Grace Brothers, Inc. increased its share of
the Company's Common Stock to 5,145,034 shares, representing approximately
18.14% of the Company's outstanding shares; additionally, in connection with the
Private Placements, Grace Brothers,
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<PAGE> 21
Inc., a substantial stockholder, received the right to appoint one member of the
Board of Directors. As a result, Brian Brookover was appointed to the Board of
Directors in January, 1998.
LITIGATION-RELATED MATTERS
The Company and five of its past or present directors and officers are
named as defendants in Katz vs. Blech, ("Katz") and Degulis vs. LXR
Biotechnology Inc., et al. ("Degulis"). One of the five, Mark Germain, the
former Chairman of the Company and a former managing director of D. Blech &
Company, Incorporated, is named as a defendant in the above two cases and also
in In re Blech Securities Litigation, ("In re Blech"). In addition, L. Scott
Minick, a former director and former officer of the Company, James D. Coombs, a
former director and former officer, and Mark J. Tomei, a director and former
officer, are defendants in Katz and Degulis; and Christopher Henney, a former
director, is a defendant in Katz. The Company was previously named as a
defendant in In re Blech but was dismissed by the Court on June 6, 1996.
All three cases are brought on behalf of classes of persons purchasing
common shares of the Company prior to September 21, 1994, and assert claims
arising out to the Company's Initial Public Offering and subsequent trading of
those shares. The suits allege violations of Sections 11 and 12 of the
Securities Act of 1933 and Sections 10(b) and 20 of the Exchange Act of 1934,
including misrepresentations and omissions in connection with the Initial Public
Offering and manipulation of share prices. The suits also allege common law
claims for fraud and deceit and seek punitive damages. The complaints allege
that defendants, including the Company and the defendant directors and officers,
failed to disclose in securities filings connected with the Initial Public
Offering, the leveraged financial condition of the Company's underwriter, D.
Blech & Co., and its principal, David Blech. The suits further allege that
defendants failed to disclose that D. Blech & Co. would act as principle market
maker for the Company's shares following the Initial Public Offering, and that
D. Blech & Co.'s extended financial commitments would affect its ability to
maintain a market for the Company's shares. The suits also allege that
defendants assisted or acquiesced in a post-offering scheme to manipulate the
market for the Company's shares and artificially inflate share prices. Document
discovery is largely completed and depositions are underway. Under the current
scheduling order, no deadline for completion of discovery is presently set and
no trial date is set.
None of the complaints in Katz, Degulis or In re Blech states a claim for a
specific amount of monetary damages. The complaint in In re Blech seeks damages
and interest as provided by law, costs and expenses of litigation, attorneys
fees, expert fees, other costs and disbursements, and such other relief as may
be just and proper. The complaint in Katz seeks rescission, an award of
compensatory damages, fees, costs and expenses including expert fees, and such
other relief as the court deems proper. The complaint in Degulis seeks
compensatory damages including rescissionary damages, interest, punitive
damages, counsel fees and other costs of suit, a constructive trust over the
proceeds of the offering, and such other and further relief as the Court deems
just and proper.
The Company has agreed to indemnify and/or advance defense costs to each of
the current or former officers and directors who are named as defendants in the
litigation. A demand by the independent underwriter for contractual indemnity
has been denied. Such denial is subject to contest by the underwriter. The
Company and the underwriter have entered into a tolling agreement whereby the
Company agreed that the running of any statute of limitations applicable to
claims of the underwriter against the Company would be tolled until the earlier
of June 30,1998 or the termination of the tolling agreement.
The Company maintains officers and directors liability insurance under
policies providing aggregate coverage totaling $3 million, which cover (i) the
Company for amounts spent indemnifying directors and officers or (ii) directors
and officers directly if the Company fails to indemnify them. The policies do
not provide coverage to the Company itself with respect to its own defense costs
and liability. The Company and its insurance carriers are currently involved in
disputes relating to the deductibles and exclusions under the policies. Whether
or to what extent insurance covers any settlement or judgment in the above
litigation will depend on the outcome of the disputes. The Company's primary
level of directors and officers liability insurance carrier has tentatively
agreed to provide coverage. On November 4, 1997, the Company's first level
excess insurer denied coverage based on the related party transactions exclusion
in its policy. The Company
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<PAGE> 22
reserves the right to contest this denial of coverage. As a result, the Company
cannot predict, at this time, the amount of any insurance reimbursement that
will be obtained. For the years December 31, 1997, 1996 and 1995, the Company
incurred expenses of approximately $140,000, $111,000 and $39,000, respectively,
relating to this litigation. To date the Company has received no reimbursement
for these expenses. The failure of the Company to obtain reimbursement for the
amounts spent defending the indemnified defendants, along with the Company's own
defense costs and any judgment or settlement payable by the Company, could have
a material adverse effect on the Company's, cash flows, results of operations
and financial condition.
The Company denies any wrongdoing and is defending the above cases
vigorously. While it is possible that the litigation may have a material adverse
financial impact on the Company, uncertainty as to whether any material judgment
or settlement will result, and the possibility that some portion of any
settlement or judgment may be covered by insurance, make it impossible to
predict at this time whether the litigation will have a material adverse
financial impact on the Company. An adverse judgment or settlement could have a
material adverse effect on the Company.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices no later than January 8, 1999 in order to be included in the
Company's Proxy Statement and form of proxy relating to the meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of the Company's Common Stock to
file initial reports of ownership and reports of changes in ownership with the
SEC and the American Stock Exchange. Such persons are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements were met during
the Company's most recent fiscal year.
ADDITIONAL INFORMATION
The Company's Annual Report for the fiscal year ended December 31, 1997 is
being mailed with this Proxy Statement to stockholders of the Company.
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
meeting, and, so far as is known to the Board, no matters are to be brought
before the meeting except as specified in the Notice of the meeting. As to any
business that may properly come before the meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.
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<PAGE> 23
LXR BIOTECHNOLOGY INC.
1993 STOCK OPTION PLAN
As adopted May 20, 1993 and
amended through March 16, 1998
1. PURPOSE. This 1993 Stock Option Plan ("Plan") is established as a
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of LXR Biotechnology Inc., a Delaware
corporation, (the "Company"). Capitalized terms not previously defined herein
are defined in Section 17 of this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the "Options")
may be either (a) incentive stock options ("ISOs") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Revenue Code"), or
(b) nonqualified stock options ("NQSOs"), as designated at the time of grant.
The shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the common stock, $0.0001 par value per
share, of the Company.
3. NUMBER OF SHARES. The aggregate number of Shares that may be issued pursuant
to Options granted under this Plan is 3,049,850 Shares, subject to adjustment as
provided in this Plan. "Named Executive Officers" (as that term is defined in
Item 402(a)(3) of Regulation S-K promulgated under the Exchange Act of 1934, as
amended, (the "Exchange Act") shall each be eligible to receive up to an
aggregate maximum of 333,333 Shares over the term of the Plan. If any Option
expires or is terminated without being exercised in whole or in part, the
unexercised or released Shares from such Option shall be available for future
grant and purchase under this Plan. At all times during the term of this Plan,
the Company shall reserve and keep available such number of Shares as shall be
required to satisfy the requirements of outstanding Options under this Plan.
4. ELIGIBILITY. Options may be granted to employees, officers, directors,
consultants, independent contractors and advisers (provided such consultants,
contractors and advisers render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction) of the Company or
any Parent, Subsidiary or Affiliate of the Company. ISOs may be granted only to
employees (including officers and directors who are also employees) of the
Company or a Parent or Subsidiary of the Company. The Committee (as defined in
Section 14) in its sole discretion shall select the recipients of Options
("Optionees"). An Optionee may be granted more than one Option under this Plan.
The Company may also, from time to time, substitute or assume outstanding
options granted by another company, whether in connection with an acquisition of
such other company or otherwise, by either (a) granting an Option under this
Plan in replacement of the option assumed by the Company, or (b) treating the
assumed option as if it had been granted under this Plan if the terms of such
assumed option could be applied to an Option granted under this Plan. Such
substitution or assumption shall be permissible if the holder of the substituted
or assumed option would have been eligible to be granted an Option hereunder if
the other company had applied the rules of this Plan to such grant.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine whether each
Option is to be an ISO or an NQSO, the number of Shares subject to the Option,
the exercise price of the Option, the period during which the Option may be
exercised, and all other terms and conditions of the Option, subject to the
following:
5.1 Form of Option Grant. Each Option granted under this Plan shall be
evidenced by a written Stock Option Grant (the "Grant") in such form (which need
not be the same for each Optionee) as the Committee
<PAGE> 24
shall from time to time approve, which Grant shall comply with and be subject to
the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option shall be the date on
which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to Optionee with a copy of this Plan within a reasonable time after
the granting of the Option.
5.3 Exercise Price. The exercise price of an Option shall be not less
than 100% of the Fair Market Value of the Shares on the date the Option is
granted. The exercise price of any Option granted to a person owning more than
l0% of the total combined voting power of all classes of stock of the Company or
any Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall not be
less than 110% of the Fair Market Value of the Shares on the date the Option is
granted.
5.4 Exercise Period. Options shall be exercisable within the times or
upon the events determined by the Committee as set forth in the Grant; provided,
however, that no Option shall be exercisable after the expiration of ten (10)
years from the date the Option is granted, and provided further that no ISO
granted to a Ten Percent Stockholder shall be exercisable after the expiration
of five (5) years from the date the Option is granted.
5.5 Limitations on ISOs. The aggregate Fair Market Value (determined as
of the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares with respect to which ISOs are exercisable for the first
time by an Optionee during any calendar year exceeds $100,000, the Options for
the first $100,000 worth of Shares to become exercisable in such year shall be
ISOs and the Options for the amount in excess of $100,000 that becomes
exercisable in that year shall be NQSOs. In the event that the Revenue Code or
the regulations promulgated thereunder are amended after the effective date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.
5.6 Options Non-Transferable. Options granted under this Plan, and any
interest therein, shall not be transferable or assignable by Optionee, and may
not be made subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Revenue Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and shall be
exercisable during the lifetime of Optionee only by Optionee; provided, however,
that NQSOs held by officers or directors of the Company or other persons whose
transactions in the Company's common stock are subject to Section 16(b) of the
Exchange Act may be transferred to such family members, trusts and charitable
institutions as the Committee, in its sole discretion, shall approve at the time
of the grant of such Option.
5.7 Assumed Options. In the event the Company assumes an option granted
by another company, the terms and conditions of such option shall remain
unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
424 of the Revenue Code). In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 4), such new
option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. EXERCISE OF OPTIONS.
6.1 Notice. Options may be exercised only by delivery to the Company of
a written stock option exercise agreement (the "Exercise Agreement") in a form
approved by the Committee (which need not be the same for each Optionee),
stating the number of Shares being purchased, the restrictions imposed on the
Shares, if any, and such representations and agreements regarding Optionee's
investment intent and access to information, if
2
<PAGE> 25
any, as may be required by the Company to comply with applicable securities
laws, together with payment in full of the exercise price for the number of
Shares being purchased.
6.2 Payment. Payment for the Shares may be made in cash (by check) or,
where approved by the Committee in its sole discretion and where permitted by
law: (a) by cancellation of indebtedness of the Company to the Optionee; (b) by
surrender of shares of common stock of the Company having a Fair Market Value
equal to the applicable exercise price of the Options that have been owned by
Optionee for more than six (6) months (and which have been paid for within the
meaning of the Securities and Exchange Commission ("SEC") Rule 144 and, if such
Shares were purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares), or were obtained by Optionee
in the open public market; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from Optionee and a
broker-dealer that is a member of the National Association of Securities Dealers
(an "NASD Dealer") whereby Optionee irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for the exercise price
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; (e) provided that a public
market for the Company's stock exists, through a "margin" commitment from
Optionee and an NASD Dealer whereby Optionee irrevocably elects to exercise the
Option and to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of the
exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; or (f) by any
combination of the foregoing.
6.3 Withholding Taxes. The Optionee shall pay to the Company promptly
upon exercise of an option or, if later, the date that the amount of such
obligations becomes determinable (in either case, the "Tax Date"), all
applicable federal, state, local and foreign withholding taxes that the
Committee, in its discretion, determines to result upon exercise of an Option or
from transfer or other disposition of shares of Common Stock acquired upon
exercise of an Option or otherwise related to an Option or Shares of Common
Stock acquired in connection with an Option. Where approved by the Committee in
its sole discretion, Optionee may provide for payment of withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld,
determined on the date that the amount of tax to be withheld is to be
determined.
6.4 Limitations on Exercise. Notwithstanding the exercise periods set
forth in the Grant, exercise of an Option shall always be subject to the
following:
6.4.1 If Optionee ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any reason except death or
disability, Optionee may exercise such Optionee's Options to the extent (and
only to the extent) that they would have been exercisable upon the date of
termination, within ninety (90) days after the date of termination (or such
shorter time period as may be specified in the Grant).
6.4.2 If Optionee's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated because of the death of
Optionee or disability of Optionee, Optionee's Options may be exercised to the
extent (and only to the extent) that they would have been exercisable by
Optionee on the date of termination, by Optionee (or Optionee's legal
representative) within twelve (12) months after the date of termination (or such
shorter time period as may be specified in the Grant), but in any event no later
than the expiration date of the Options; provided that in the event of
termination due to disability, other than as defined in Section 22(a)(3) of the
Internal Revenue Code, as amended, any ISO which remains exercisable after 90
days after the date of termination shall be deemed a NQSO.
6.4.3 The Committee shall have discretion to determine whether
Optionee has ceased to be employed by the Company or any Parent, Subsidiary or
Affiliate of the Company and the effective date on which such employment
terminated.
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<PAGE> 26
6.4.4 In the case of an Optionee who is a director,
independent consultant or adviser, the Committee will have the discretion to
determine whether Optionee is "employed by the Company or any Parent, Subsidiary
or Affiliate of the Company" pursuant to the foregoing Sections.
6.4.5 The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
6.4.6 An Option shall not be exercisable unless such exercise
is in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), all applicable state securities laws and the requirements of any stock
exchange or national market system upon which the Shares may then be listed, as
they are in effect on the date of exercise. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or national market system, and the Company shall have no
liability for any inability or failure to do so.
7. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may
reserve to itself and/or its assignee(s) in the Grant a right of first refusal
to purchase all Shares that an Optionee (or a subsequent transferee) may propose
to transfer to a third party. Further, at the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Grant a right to
repurchase a portion of or all Shares held by an Optionee upon Optionee's
termination of employment or service with the Company or a Parent, Subsidiary or
Affiliate of the Company, for any reason within a specified time as determined
by the Committee at the time of grant at Optionee's original purchase price, the
Fair Market Value of such Shares or a price determined by a formula or other
provision set forth in the Grant.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee shall have the
power to modify, extend or renew outstanding Options and to authorize the grant
of new Options in substitution therefor, provided that any such action may not,
without the written consent of Optionee, impair any rights under any Option
previously granted. Any outstanding ISO that is modified, extended, renewed or
otherwise altered shall be treated in accordance with Section 424(h) of the
Revenue Code. The Committee shall have the power to reduce the exercise price of
outstanding Options without the consent of Optionees by a written notice to the
Optionees affected; provided, however, that the exercise price per Share may not
be reduced below the minimum exercise price that would be permitted under
Section 5.3 of this Plan for Options granted on the date the action is taken to
reduce the exercise price; and provided that the exercise price per Share may
not be reduced below the par value per Share.
9. STOCK OWNERSHIP; FINANCIAL STATEMENTS. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. However, the Company shall provide to each
Optionee, during the period for which Optionee has one or more Options
outstanding, copies of the financial statements of the Company, consisting of,
at a minimum, a balance sheet and an income statement, at least annually. The
Company shall not be required to provide such information to key employees whose
duties in connection with the Company assume their access to equivalent
information.
10. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted under
this Plan shall confer on any Optionee any right to continue in the employ of,
or other relationship with, the Company or any Parent, Subsidiary or Affiliate
of the Company or limit in any way the right of the Company or any Parent,
Subsidiary or Affiliate of the Company to terminate Optionee's employment or
other relationship at any time, with or without cause.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of outstanding
shares of common stock of the Company is changed by a stock dividend, stock
split, reverse stock split, recapitalization, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar
4
<PAGE> 27
transaction, to the shareholders of the Company, the number of Shares available
under this Plan and the number of Shares subject to outstanding Options and the
exercise price per Share of such Options shall be proportionately adjusted,
subject to any required action by the Board of Directors (the "Board") or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that a fractional share shall not be issued upon exercise of
any Option and any fractions of a Share that would have resulted shall either be
cashed out at Fair Market Value or the number of Shares issuable under the
Option shall be rounded up to the nearest whole number, as determined by the
Committee; and provided further that the exercise price may not be decreased to
below the par value, if any, for the Shares.
12. ASSUMPTION OF OPTIONS BY SUCCESSORS.
12.1 Assumption or Substitution. In the event of (a) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly owned subsidiary, a reincorporation, or
other transaction in which there is no substantial change in the shareholders of
the corporation and the Options granted under this Plan are assumed or replaced
by the successor corporation, which assumption shall be binding on all
Optionees), (b) a dissolution or liquidation of the Company, (c) the sale of
substantially all of the assets of the Company, or (d) any other transaction
which qualifies as a "corporate transaction" under Section 424(a) of the Revenue
Code wherein the shareholders of the Company give up all of their equity
interest in the Company (except for the acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company), any or all
outstanding Options may be assumed or replaced by the successor corporation,
which assumption shall be binding on all Optionees. In the alternative, the
successor corporation may substitute an equivalent option or provide
substantially similar consideration to Optionees as was provided to shareholders
(after taking into account the existing provisions of Optionee's options, such
as the exercise price and the vesting schedule). The successor corporation may
also issue, in place of outstanding shares of the Company held by Optionee as a
result of the exercise of an Option that is subject to repurchase, substantially
similar shares or other property subject to similar repurchase restrictions no
less favorable to Optionee.
12.2 Expiration. In the event such successor corporation, if any,
refuses to assume or substitute Options, as provided above, pursuant to a
transaction described in Section 12.1 above, or there is no successor
corporation, and if the Company is ceasing to exist as a separate corporate
entity, the Options shall, notwithstanding any contrary terms in the Grant,
expire on (and, in the case of a transaction described in Subsection 12.1(a)
above, if the Company has reserved to itself a right to repurchase Shares issued
on exercise of Options at the original purchase price of such Shares, such right
shall terminate on), a date at least 20 days after the Board gives written
notice to Optionees specifying the terms and conditions of such termination.
12.3 Additional Provisions. Subject to the foregoing provisions of this
Section 12, in the event of the occurrence of any transaction described in
Section 12.1, any outstanding Option shall be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation,
sale of assets or other "corporate transaction".
13. ADOPTION AND STOCKHOLDER APPROVAL. This Plan shall become effective on the
date that it is adopted by the Board of the Company. This Plan shall be approved
by the shareholders of the Company, in any manner permitted by applicable
corporate law, within twelve months before or after the date this Plan is
adopted by the Board. Upon the effective date of the Plan, the Board may grant
Options pursuant to this Plan; provided that, in the event that Stockholder
approval is not obtained within the time period provided herein, all Options
granted hereunder shall terminate.
14. ADMINISTRATION. This Plan may be administered by the Board or a committee
appointed by the Board (the "Committee"). If two or more members of the Board
are Nonemployee Directors, the Committee will be comprised of at least two (2)
members of the Board, all of whom are Nonemployee Directors. As used in this
Plan, references to the "Committee" shall mean either the committee appointed by
the Board to administer this Plan or the Board if no committee has been
established. The interpretation by the Committee of any of the provisions of
this Plan or any Option granted under this Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option. The Committee may
5
<PAGE> 28
delegate to officers of the Company the authority to grant Options under this
Plan to Optionees who are not officers or directors of the Company or other
persons whose transactions in the Company's common stock are subject to Section
16(b) of the Exchange Act.
15. TERM OF PLAN. Options may be granted pursuant to this Plan from time to time
within a period of ten (10) years after the date on which this Plan is adopted
by the Board.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time terminate or
amend this Plan in any respect including (but not limited to) amendment of any
form of grant, exercise agreement or instrument to be executed pursuant to this
Plan; provided, however, that the Committee shall not, without the approval of
the shareholders of the Company, amend this Plan in any manner that requires
such stockholder approval pursuant to the Revenue Code or the regulations
promulgated thereunder as such provisions apply to ISO plans.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall have
the following meanings:
17.1 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
17.2 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
17.3 "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
17.4 "Fair Market Value" shall mean the fair market value of the Shares
as determined by the Committee from time to time in good faith. If a public
market exists for the Shares, the Fair Market Value shall be the average of the
last reported bid and asked prices for common stock of the Company on the last
trading day prior to the date of determination (or the average closing price
over the number of consecutive working days preceding the date of determination
as the Committee shall deem appropriate) or, in the event the common stock of
the Company is listed on a stock exchange or on the Nasdaq National Market, the
Fair Market Value shall be the closing price on such exchange or quotation
system on the last trading day prior to the date of determination (or the
average closing price over the number of consecutive working days preceding the
date of determination as the Committee shall deem appropriate).
17.5 "Nonemployee Director" shall mean any person who is a member of
the Board but is not an employee of the Company or an Affiliate of the Company
and has not been an employee of the Company or any Affiliate of the Company at
any time during the preceding twelve months. Service as a Director does not
itself constitute employment for purposes of this definition.
####
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YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED SO THAT
YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
LXR BIOTECHNOLOGY INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
June 11, 1998
The undersigned hereby appoints L. David Tomei and Shelli Geer, or either of
them, each with full power of substitution, to represent the undersigned at the
Annual Meeting of Stockholders of LXR Biotechnology Inc. (the "Company") to be
held at 10:00 a.m. on Thursday, June 11, 1998, at the Company's offices located
at 1401 Marina Way South, Richmond, California, and at any adjournments or
postponements thereof, and to vote the number of shares the undersigned would be
entitled to vote if personally present at the meeting on the following matters:
PROPOSAL 1. ELECTION OF DIRECTORS.
{ } FOR all nominees listed { } WITHHOLD AUTHORITY to vote
below (except as indicated for all nominees listed below
to the contrary below)
Nominees:
L. David Tomei Neil Flanzraich
John Kane Brian Brookover
Eugene Eidenberg G. Kirk Raab
William R. Hambrecht Kenneth R. McGuire
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
PROPOSAL 2. AMENDMENT TO THE COMPANY'S 1993 STOCK OPTION PLAN TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY
1,200,000 SHARES, FROM 1,849,850 SHARES TO 3,049,850 SHARES.
{ } FOR { } AGAINST { } ABSTAIN
<PAGE> 30
PROPOSAL 3. AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF THE COMPANY'S AUTHORIZED SHARES OF COMMON STOCK FROM
45 MILLION SHARES TO 60 MILLION SHARES.
{ } FOR { } AGAINST { } ABSTAIN
PROPOSAL 4. RATIFYING THE SELECTION OF KPMG/ PEAT MARWICK LLP AS THE INDEPENDENT
ACCOUNTANTS.
{ } FOR { } AGAINST { } ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE TEN
NOMINEES AND FOR PROPOSALS 2, 3 AND 4.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. WHEN NO CHOICE IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE TEN NOMINEES AND FOR
PROPOSALS 2, 3 AND 4. In their discretion, the proxy holders are authorized to
vote upon such other business as may properly come before the meeting or any
adjournments or postponements thereof to the extent authorized by Rule 14a-4(c)
promulgated under the Securities Exchange Act of 1934, as amended.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF LXR BIOTECHNOLOGY
INC.
Signature(s) of stockholder(s):
Dated __________________________, 1998
______________________________________
Signature (print title, if applicable)
______________________________________
Signature (print title, if applicable)
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased stockholder should give
their full title. Please date the proxy.
Please check the following box if you plan to attend the meeting: / /
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED SO THAT
YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
