<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:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12
LA JOLLA PHARMACEUTICAL COMPANY
- ------------------------------------------------------------------------------
(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)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- ------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- ------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
- ------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ------------------------------------------------------------------------------
(5) Total fee paid:
- ------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- ------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- ------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- ------------------------------------------------------------------------------
(3) Filing Party:
- ------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
LA JOLLA PHARMACEUTICAL COMPANY
6455 NANCY RIDGE DRIVE
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1997
To the Stockholders of
LA JOLLA PHARMACEUTICAL COMPANY
The Annual Meeting of Stockholders of La Jolla Pharmaceutical Company,
a Delaware corporation (the "Company"), will be held at the Company's offices at
6455 Nancy Ridge Drive, San Diego, California, on May 13, 1997, at 10:00 a.m.
for the following purposes:
1. To elect a Board of six directors to serve until the next annual
meeting of stockholders of the Company and until their successors are elected
and qualified.
2. To consider and vote on a proposal to amend the Company's 1994 Stock
Incentive Plan to increase by 500,000 (subject to antidilution adjustments
specified in the plan) the total number of shares of the Company's Common Stock
that may be issued pursuant to such plan.
3. To consider and vote on a proposal to amend the Company's 1994 Stock
Incentive Plan to limit awards to the Chief Executive Officer and each of the
other four most highly compensated executives to 250,000 option shares and $1
million in performance awards in any calendar year, and to specify certain
performance criteria for awards to such persons, all in an effort to preserve
the Company's ability to take income tax deductions for compensation in excess
of $1 million paid to such persons in any calendar year by qualifying awards
under the plan to such persons as "performance based compensation" under Section
162(m) of the Internal Revenue Code of 1986, as amended.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Company's Board of Directors has fixed the close of business on
March 17, 1997 as the record date for the determination of stockholders entitled
to notice of and to vote at the annual meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. YOU ARE
URGED TO SIGN, DATE AND COMPLETE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU
ATTEND THE MEETING AND WISH TO DO SO, YOU MAY VOTE YOUR SHARES IN PERSON EVEN IF
YOU HAVE SIGNED AND RETURNED YOUR PROXY CARD.
By Order of the Board of Directors
/s/ WOOD C. ERWIN
Wood C. Erwin
Secretary
San Diego, California
April 7, 1997
<PAGE> 3
LA JOLLA PHARMACEUTICAL COMPANY
6455 NANCY RIDGE DRIVE
SAN DIEGO, CALIFORNIA 92121
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1997
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of La Jolla Pharmaceutical Company, a
Delaware corporation (the "Company"), for use at the Company's 1997 Annual
Meeting of Stockholders to be held on May 13, 1997 at 10:00 a.m. (the "Meeting")
and at any and all postponements and adjournments of the Meeting. The Meeting
will be held at the Company's offices at 6455 Nancy Ridge Drive, San Diego,
California. This Proxy Statement and the accompanying form of proxy will be
first mailed to stockholders on or about April 7, 1997.
The cost of preparing, assembling and mailing the Notice of Annual
Meeting of Stockholders, Proxy Statement and form of proxy and the cost of
soliciting proxies will be paid by the Company. The Company will pay brokers or
other persons holding stock in their names or the names of their nominees for
the reasonable expenses of forwarding soliciting material to their principals.
Proxies may be solicited in person or by telephone, telefax or other electronic
means by personnel of the Company who will not receive any additional
compensation for such solicitation. In addition, the Company has engaged
MacKenzie Partners, Inc. to assist in soliciting proxies for a fee of
approximately $3,000 plus reimbursement of reasonable out-of-pocket expenses.
VOTING
The close of business on March 17, 1997 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Meeting. On that date there were 17,279,895 shares of the Company's Common
Stock outstanding. Each share is entitled to one vote on any matter that may be
presented for consideration and action by the stockholders at the Meeting. The
holders of a majority of the shares of Common Stock outstanding on the record
date and entitled to be voted at the Meeting, present in person or by proxy,
will constitute a quorum for the transaction of business at the Meeting and any
adjournments and postponements thereof.
Shares abstained or subject to a broker non-vote are counted as present
for the purpose of determining the presence or absence of a quorum for the
transaction of business. Abstentions are counted in tabulations of the votes
cast on a proposal presented to stockholders and generally have the same effect
as a vote against the proposal, whereas broker non-votes are not counted for
purposes of determining whether a proposal has been approved.
Each proxy submitted by a stockholder will, unless otherwise directed
by the stockholder in the proxy, be voted FOR (a) election of the six director
nominees named herein; (b) amendment of the Company's 1994 Stock Incentive Plan
(the "Plan") to increase by 500,000 (subject to antidilution adjustments
specified in the Plan) the total number of shares of the Company's Common Stock
that may be issued pursuant to the Plan; and (c) amendment of the Plan to limit
awards to the Chief Executive Officer and each of the other four most highly
compensated executives to 250,000 option shares and $1 million in performance
awards in any calendar year, and to specify certain performance criteria for
awards to such persons, all in an effort to preserve the Company's ability to
take income tax deductions for compensation in excess of $1 million paid to such
persons in any calendar year by qualifying awards under the Plan to such persons
as "performance based compensation" under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). If a stockholder has submitted a
<PAGE> 4
proxy appropriately directing how the shares represented thereby are to be
voted, such shares will be voted according to the stockholder's direction. Any
stockholder has the power to revoke his or her proxy at any time before it is
voted at the Meeting by submitting a written notice of revocation to the
Secretary of the Company or by filing a duly executed proxy bearing a later
date. A proxy will not be voted if the stockholder who executed it is present at
the Meeting and elects to vote the shares represented thereby in person.
The Board of Directors reserves the right to withhold any proposal
described herein from a vote at the Meeting if the Board of Directors deems a
vote on such proposal to be contrary to the best interests of the Company and
its stockholders. In such an event, the proposal withheld will be neither
adopted nor defeated.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of March 17, 1997 by those known by the
Company to be beneficial owners of more than five percent (5%) of the
outstanding shares of the Company's Common Stock, by each of the present
directors, by each of the executive officers named in the Summary Compensation
Table on page 6, and by all directors and executive officers of the Company as a
group. On March 17, 1997, there were 17,279,895 shares of Common Stock
outstanding. The number of shares beneficially owned is deemed to include shares
of the Company's Common Stock as to which the beneficial owner has or shares
either investment or voting power. Unless otherwise stated, and except for
voting powers held jointly with a person's spouse, the persons and entities
named in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them. All information with
respect to beneficial ownership is based on filings made by the respective
beneficial owners with the Securities and Exchange Commission or information
provided to the Company by such beneficial owners.
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership(1) Class
- ------------------------------------- ----------------------------------- ----------------------
<S> <C> <C>
Biotech Target S.A.(2) 2,961,000 17.1%
Swiss Bank Tower
Panama 1
Republic of Panama
State of Wisconsin Investment Board 1,522,500 8.8%
121 East Wilson
Madison, Wisconsin 53707
Allstate Insurance Company(3) 1,247,066 7.2%
Allstate Plaza G5D
Northbrook, Illinois 60062
New York Life Insurance Company(4) 1,145,608 6.6%
51 Madison Avenue
New York, New York 10010
Putnam Investments, Inc.(5) 1,139,600 6.6%
One Post Office Square
Boston, Massachusetts 02109
Abbott Laboratories 1,000,050 5.8%
100 Abbott Park Road
Abbott Park, Illinois 60064
Thomas H. Adams, Ph.D.(6) 24,800 *
Stephen M. Coutts, Ph.D.(7) 191,298 1.1%
Mark T. Edgar, Ph.D.(6) 17,000 *
William E. Engbers(6) 18,000 *
Steven B. Engle(8) 212,442 1.2%
Robert A. Fildes, Ph.D.(9) 58,002 *
Bonnie Hepburn, M.D. -- *
Joseph Stemler(10) 406,500 2.4%
W. Leigh Thompson, M.D., Ph.D.(6) 10,000 *
Peter G. Ulrich(11) 19,700 *
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C> <C>
All directors and executive officers as a 984,601 5.7%
group (12 persons)(12)
</TABLE>
- ---------------------------
* Less than 1%
(1) Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act
of 1934, as amended. Shares not outstanding that are subject to options
or warrants exercisable by the holder thereof within 60 days of March
17, 1997 are deemed outstanding for the purposes of calculating the
number and percentage owned by such stockholder, but not deemed
outstanding for the purpose of calculating the percentage owned by each
other stockholder listed. Unless otherwise noted, all shares listed as
beneficially owned by a stockholder are actually outstanding.
(2) Wholly-owned subsidiary of BB Biotech AG, a Swiss corporation.
(3) Includes 140,429 shares issuable upon exercise of warrants.
(4) Includes 112,343 shares issuable upon exercise of warrants.
(5) Reflects shared investment power.
(6) All shares are issuable upon exercise of stock options.
(7) Includes 183,000 shares issuable upon exercise of stock options.
(8) Includes 210,958 shares issuable upon exercise of stock options.
(9) Includes 22,600 shares issuable upon exercise of stock options.
(10) Includes 366,500 shares issuable upon exercise of stock options.
(11) Includes 9,000 shares issuable upon exercise of stock options.
(12) Includes 881,433 shares issuable upon exercise of stock options.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
The Company's directors are elected at each annual meeting of
stockholders. Currently, the number of authorized directors of the Company is
six. At the Meeting, six directors will be elected to serve until the next
annual meeting of stockholders and until their successors are elected and
qualified. If a quorum is present at the Meeting, the nominees receiving the
greatest number of votes up to the number of authorized directors will be
elected.
All of the nominees for election as directors at the Meeting set forth
in the table below are incumbent directors. All nominees except Dr. Thompson
were elected at the 1996 Annual Meeting of Stockholders; Dr. Thompson was
appointed by the other Board members on August 2, 1996 to fill a vacancy. Each
of the nominees has consented to serve as a director if elected. Except to the
extent that authority to vote for any directors is withheld in a proxy, shares
represented by proxies will be voted FOR such nominees. In the event that any of
the nominees for director should before the Meeting become unable to serve if
elected, shares represented by proxies will be voted for such substitute
nominees as may be recommended by the Company's existing Board of Directors,
unless other directions are given in the proxies. To the Company's knowledge,
all the nominees will be available to serve.
The following biographical information is furnished with respect to
each of the six nominees for election at the Meeting.
<TABLE>
<CAPTION>
Nominee Age Principal Occupation Director Since
- ------------------------------------ --- --------------------------------------------- ---------------
<S> <C> <C> <C>
Thomas H. Adams, Ph.D.(1) 54 Chairman of the Board and Chief Executive 1991
Officer of Genta, Inc.
William E. Engbers(2) 53 Venture Capital Manager, Allstate Insurance 1991
Company
Steven B. Engle(3) 42 President, Chief Executive Officer and 1994
Chairman of the Board of the Company
Robert A. Fildes, Ph.D.(4) 58 Chairman of the Board and Chief Executive 1991
Officer of Scotgen Biopharmaceuticals, Inc.
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Joseph Stemler(5) 66 Retired Chief Executive Officer and former 1989
Chairman of the Board of the Company
W. Leigh Thompson, M.D., Ph.D.(6) 58 President and Chief Executive Officer of 1996
Profound Quality Resources, Ltd.
</TABLE>
- ---------------------------
(1) DR. ADAMS is the founder, Chairman and Chief Executive Officer of Genta,
Inc., a publicly held biotechnology company in the field of antisense
technology. Before founding Genta, Dr. Adams founded Gen-Probe, Inc. in
1984 and served as its Chief Executive Officer and Chairman until its
acquisition by Chugai Pharmaceuticals, Inc. in 1989. Before founding
Gen-Probe, Dr. Adams was Senior Vice President of Research and Development
at Hybritech until 1984. Hybritech was later acquired by Eli Lilly and Co.
in 1986. Dr. Adams has also held management positions at Technicon
Instruments and the Hyland Division of Baxter Travenol. In addition to his
chairmanship of Genta, Inc., Dr. Adams currently serves as a director of
Life Technologies, Inc. and Biosite Diagnostics, Inc., each of which is a
publicly held medical research firm. Dr. Adams holds a Ph.D. in
Biochemistry from the University of California at Riverside.
(2) MR. ENGBERS has been Venture Capital Manager for Allstate Insurance
Company since 1989. Before joining Allstate, he was a Vice President at
Whitehead Associates, an investment firm, from 1983 to 1987, and Chairman
of the Board of Plant Genetics, Inc., a publicly-traded biotechnology
company, from 1982 to 1989. Mr. Engbers also served as a director of
Diametrics Medical, Inc., a publicly held manufacturer and marketer of
blood chemistry testing systems, until June 1996. Mr. Engbers currently
serves as a director of Applied Biometrics, a publicly held medical device
company and DM Management, a publicly held women's apparel company. Mr.
Engbers received a BBA degree in accounting from Marshall University and
has attended graduate business school at Marshall and Seattle University.
(3) MR. ENGLE joined the Company in 1993 as Executive Vice President and Chief
Operating Officer. He assumed the offices of President, Director, and
Assistant Secretary in 1994, and became Chief Executive Officer in July
1995 and Chairman of the Board in March 1997. From 1991 to 1993, Mr. Engle
served as Acting Chief Executive Officer, Acting Vice President of
Manufacturing and Vice President of Marketing for Cygnus Therapeutic
Systems, a publicly held company that develops and manufactures delivery
systems for therapeutic drugs. From 1987 to 1991 he was Chief Executive
Officer of Quantum Management, a privately held management consulting firm
specializing in the pharmaceutical and biotechnology industry. From 1984
to 1987, he was Vice President of Marketing, Divisional General Manager,
and Sales and Marketing Director for Micro Power Systems, a privately held
company that manufactures high technology products including medical
devices. From 1979 to 1984 he was a Senior Management Consultant at
Strategic Decisions Group and SRI International, where he advised
pharmaceutical, biotechnology and other companies. Mr. Engle holds an MSEE
and a BSEE in Biomedical Engineering from the University of Texas.
(4) DR. FILDES has been Chairman and Chief Executive Officer of Scotgen
Biopharmaceuticals, Inc., a privately held company in the field of human
monoclonal antibody technology, since 1993. From 1990 to 1993, Dr. Fildes
was an independent consultant in the biopharmaceutical industry. Dr.
Fildes was the President and Chief Executive Officer of Cetus Corporation
from 1982 to 1990. Before his eight years at Cetus, Dr. Fildes was the
President of Biogen, Inc. from 1980 to 1982 and the Vice President of
Operations for the Industrial Division of Bristol-Myers from 1975 to 1980.
Dr. Fildes is also a director of Carrington Laboratories, a publicly held
company that develops and manufactures products for wound and skin care.
Dr. Fildes holds a D.C.C. degree in Microbial Bio-chemistry and a Ph.D. in
Biochemical Genetics from the University of London.
(5) MR. STEMLER served as Chairman of the Board of Directors of the Company
from its formation in May 1989 until March 1997, and also served as its
Chief Executive Officer until July 1995. Before the Company's formation,
Mr. Stemler served as President, Chief Executive Officer, and Chairman of
Quidel Corporation from 1985 to 1988, and as Chief Executive Officer and
Chairman of Quidel from 1988 to 1989. Quidel is a publicly held company
that develops, manufactures and markets rapid human diagnostic test kits.
From 1978 to 1985, he served as President of Bentley Laboratories and,
after Bentley's acquisition by American Hospital Supply Corporation
(AHSC), as President of AHSC's Bentley subsidiary. Mr. Stemler is
currently a director of Sunrise Medical Inc., a publicly held manufacturer
and provider of medical products used in the rehabilitation and recovery
phases of patient care, Safeskin Corporation, a publicly held
4
<PAGE> 7
manufacturer of surgical gloves, and Scholle Corporation, a privately held
company that develops, manufactures and markets aseptic flexible food
containers. He is an engineering graduate of Illinois Institute of
Technology and also holds advanced degrees in engineering and business
administration.
(6) DR. THOMPSON has been President and Chief Executive Officer of Profound
Quality Resources, Ltd. since 1995. Prior to his present positions, Dr.
Thompson was Chief Scientific Officer with Eli Lilly and Company in 1994
and Executive Vice President and Group Vice President with Lilly Research
Laboratories from 1992 to 1994. Dr. Thompson also serves as a director of
Corvas International, DNX/Chrysalis, GeneMedicine, Guilford
Pharmaceutical, Medarex, and Orphan Medical, Inc., each of which is a
publicly held medical research firm. Dr. Thompson holds a Ph.D. from the
Medical University of South Carolina and an M.D. from The Johns Hopkins
University.
BOARD COMMITTEES AND MEETINGS
The Audit Committee of the Board of Directors currently consists of Dr.
Adams, Mr. Engbers and Dr. Fildes. The Audit Committee (a) reviews, prior to
publication, the Company's annual financial statements; (b) reviews the scope of
the current annual audit and fees therefor, and the results of the prior year's
audit; (c) reviews the Company's accounting and financial reporting practices;
(d) reviews the Company's system of internal accounting controls; (e) reviews
the scope of any other services to be performed by the independent auditors; (f)
recommends the retention or replacement of the independent auditors; (g) reviews
the adequacy of the Company's accounting and financial personnel resources; (h)
reviews and considers any other matters relative to the audit of the Company's
accounts and the preparation of its financial statements and reports that the
committee deems appropriate; and (i) reviews, acts on and reports to the Board
of Directors with respect to various financial reporting and accounting
practices and consults with the Company's independent auditors and management
with respect thereto.
The Compensation Committee of the Board of Directors currently consists
of Dr. Adams, Mr. Engbers and Dr. Fildes. The Compensation Committee advises the
Board of Directors with respect to various human resource matters, including
compensation, and administers the Company's stock incentive plans.
The Board of Directors acts as a committee of the whole with respect to
nominations for membership on the Board. The Board will consider nominees
recommended by stockholders, and stockholders desiring to make such a
recommendation should submit the name, address, telephone number, and
qualifications of the proposed nominee in writing to the Company's Secretary.
During the Company's fiscal year ended December 31, 1996, there were
seven meetings of the Board of Directors, one meeting of the Audit Committee,
and one meeting of the Compensation Committee. While a director, each of the
current Board members attended 85% or more of the meetings of the Board of
Directors and meetings of the committees on which he served during such period
except that Dr. Adams did not attend the meeting of the Compensation Committee
and Dr. Thompson did not attend one of the two meetings of the Board of
Directors held since his appointment.
DIRECTORS' COMPENSATION
Directors who are also employees of the Company receive no extra
compensation for their service on the Board. Non-employee directors receive an
annual retainer of $5,000, fees of $1,000 per Board meeting attended in person
and $500 per telephonic meeting, and reimbursement of reasonable costs
associated with attendance at meetings of the Board and its committees.
Pursuant to the Company's 1994 Stock Incentive Plan, each non-employee
director of the Company automatically receives, upon becoming a director, a
one-time grant of an option to purchase up to 20,000 shares of the Company's
Common Stock at an exercise price equal to the fair market value of the Common
Stock on the date of the option's grant. These non-employee director options
have a term of ten years and become exercisable with respect to 25% of the
underlying shares on the grant date and with respect to an additional 25% of the
underlying shares on the date of each of the first three annual stockholders'
meetings following the grant date (or,
5
<PAGE> 8
if an annual meeting occurs within six months after the grant date, then on the
second, third and fourth anniversaries of the grant date), if the recipient is
then continuing as a director for the ensuing year.
Each non-employee director also receives, upon each re-election to the
Board, an automatic annual grant of an option to purchase up to 3,000 shares of
the Company's Common Stock. These options have a term of ten years and an
exercise price equal to the fair market value of a share of the Company's Common
Stock on the date of grant. These options vest and become exercisable on the
earlier to occur of (i) the first anniversary of the grant date or (ii)
immediately prior to the annual meeting of stockholders of the Company next
following the grant date, if the director has served as a director from the
grant date to such earlier date.
Grants of non-employee directors' options count against the maximum
number of shares issuable under the Plan. Shares underlying non-employee
director options that expire or are terminated or canceled will again become
available for further awards under the Plan. In the event that a recipient of
non-employee director options ceases to be a director of the Company, all such
options granted to him will be exercisable, to the extent they were exercisable
at the date directorship ceased, for a period of 365 days or, if earlier, the
expiration of the option according to its terms. Vesting accelerates upon
certain transactions including dissolution, merger and change in control. The
Plan provides that the exercise price may be paid by Company loan or withholding
of underlying stock, or deferred until completion of broker-assisted exercise
and sale transactions.
During the fiscal year ended December 31, 1996, 52,000 options were
issued to the Company's non-employee directors.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid for the last three
fiscal years to the Company's Chief Executive Officer and the other four most
highly compensated persons who were serving as executive officers of the Company
at the end of the fiscal year ended December 31, 1996 and whose total annual
salary and bonus for that fiscal year exceeded $100,000 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------------- ----------------
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary ($) Options (#) ($)
- ---------------------------------------------- -------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Steven B. Engle 1996 222,461 40,000 8,410
President, Chief Executive Officer and 1995 189,404 110,000 --
Chairman of the Board(1) 1994 160,285 200,000 54,256
Stephen M. Coutts, Ph.D. 1996 186,250 30,000 --
Executive Vice President of Research 1995 174,808 10,000 --
and Development 1994 165,000 30,500 --
Peter G. Ulrich 1996 150,865 20,000 --
Senior Vice President of Corporate 1995 9,808 45,000 15,000
Development and Marketing(2) 1994 -- -- --
Mark T. Edgar, Ph.D. 1996 143,631 15,000 --
Vice President of Operations(3) 1995 86,308 31,000 10,000
1994 -- -- --
Bonnie Hepburn, M.D. 1996 130,769 50,000 23,758
Vice President of Clinical 1995 -- -- --
Development(4) 1994 -- -- --
</TABLE>
- ---------------------------
6
<PAGE> 9
(1) All other compensation paid to Mr. Engle during 1996 consisted of
relocation expenses.
(2) Mr. Ulrich joined the Company as Senior Vice President of Corporate
Development and Marketing on November 30, 1995. Accordingly, he did not
earn or receive any compensation from the Company until the fiscal year
ended December 31, 1995.
(3) Dr. Edgar joined the Company as Vice President of Operations on May 1,
1995. Accordingly, he did not earn or receive any compensation from the
Company until the fiscal year ended December 31, 1995.
(4) Dr. Hepburn joined the Company as Vice President of Clinical Development
on April 29, 1996. Accordingly, she did not earn or receive any
compensation from the Company until the fiscal year ended December 31,
1996. All other compensation paid to Dr. Hepburn during 1996 consisted of
relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 1996.
<TABLE>
<CAPTION>
Individual Grants
- ------------------ ----------------------------------------------------------------- --------------------------------
Market Potential Realizable Value at
Number % of Total Price of Assumed Annual Rates of Stock
of Securities Options Common Price Appreciation for
Underlying Granted to Exercise Stock on Option Term ($)(4)
Options Employees in Price Date of Expiration -------------------------------
Name Granted(#)(1) Fiscal Year ($/share)(2) Grant($) Date(3) 5% 10%
- ------------------ -------------- ------------- ------------ ------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven B. Engle 40,000 9.6 4.6875 4.6875 07/24/06 117,918 298,827
Stephen M. Coutts 30,000 7.2 4.6875 4.6875 07/24/06 88,438 224,120
Peter G. Ulrich 20,000 4.8 3.75 3.75 11/05/06 47,167 119,531
Mark T. Edgar 15,000 3.6 4.875 4.875 07/12/06 45,988 116,542
Bonnie Hepburn 50,000 12.0 4.6875 4.6875 07/24/06 147,397 373,533
</TABLE>
- ---------------------------
(1) All options were granted under the Company's 1994 Stock Incentive Plan and
are exercisable with respect to 20% of the shares covered thereby starting
on the first anniversary of the grant date, and thereafter with respect to
an additional 20% of the shares covered thereby on each successive
anniversary date. The Plan is administered by the Compensation Committee
of the Board, which has broad discretion and authority to construe and
interpret the Plan and to modify outstanding options.
(2) The exercise price and tax withholding obligations related to the exercise
may be paid by delivery of already owned shares or by offset of the
underlying shares, subject to certain conditions.
(3) All of the options were granted for a term of l0 years, subject to earlier
termination upon certain events related to termination of employment or a
change in control of the Company.
(4) The potential realizable values listed are based on an assumption that the
market price of the Company's Common Stock appreciates at the stated rate,
compounded annually, from the date of grant to the expiration date. The 5%
and 10% assumed rates of appreciation are determined by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate of the future market value of the Common Stock. Actual gains, if
any, are dependent on the future market price of the Company's Common
Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares acquired on
exercise of stock options and the aggregate gains realized on exercise during
the fiscal year ended December 31, 1996 by the Named Executive Officers. The
table also sets forth the number of shares covered by exercisable and
unexercisable options held by such executives on December 31, 1996, and the
aggregate gains that would have been realized had these options been exercised
on December 31, 1996, even though these options were not exercised, and the
unexercisable options could not have been exercised, on that date.
7
<PAGE> 10
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year End(#) At Fiscal Year End(1)($)
Shares Acquired Value ------------------------------ ----------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven B. Engle -- -- 183,764 166,236 706,624 425,682
Stephen M. Coutts 1,500 10,219 181,861 57,139 898,678 142,565
Peter G. Ulrich -- -- 9,000 56,000 18,563 119,250
Mark T. Edgar -- -- 7,500 38,500 17,937 72,373
Bonnie Hepburn -- -- -- 50,000 -- 65,625
</TABLE>
- ---------------------------
(1) These amounts represent the difference between the exercise price of the
in-the-money options and the market price of the Company's Common Stock on
December 31, 1996 (the last trading day of 1996). The closing price of the
Company's Common Stock on that day on the Nasdaq National Market was
$6.00. Options are in-the-money if the market value of the shares covered
thereby is greater than the option exercise price.
EMPLOYMENT AND CONSULTING CONTRACTS
Stephen M. Coutts has an agreement with the Company entitling him to
receive three months severance in the event of involuntary termination of
employment by the Company, whether or not for cause.
Steven B. Engle has an employment contract with the Company that (i)
provides for a minimum annual salary of $150,000, (ii) entitles him to receive
nine months severance in the event of involuntary termination of his employment
by the Company or any adverse change in his employment status or
responsibilities without cause, and (iii) requires successors of the Company to
assume the contract.
Joseph Stemler has a consulting contract with the Company pursuant to
which he may perform consulting services for the Company from time to time as
requested by the Company's Chief Executive Officer in exchange for $1,500 per
day.
In addition, all of the Company's employees, including the Named
Executive Officers, are required to enter into Invention and Confidential
Information Agreements with the Company. These agreements are intended to
protect the Company's confidential information, including assignment to the
Company of inventions conceived by the employee in the course of his or her
employment with the Company. However, due to proscriptions on noncompetition
covenants under California law, neither the Company's executives nor its
employees are subject to any restriction on accepting employment with a
competitor of the Company if their employment with the Company terminates for
any reason.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is composed of three non-employee directors and administers the Company's
executive compensation programs, including the Company's stock incentive plans.
The Company's executive compensation program is designed to provide competitive
levels of base compensation in order to attract, retain and motivate high
quality employees, tie individual total compensation to individual performance
and the success of the Company, and align the interests of the Company's
executive officers with those of its stockholders. Through 1996, the Company's
executive compensation program consisted of base salary and stock option grants.
The Committee believes that the Company's ability to execute its drug
discovery programs and successfully bring products to market depends heavily
upon the quality of its top scientific and management personnel. Accordingly,
the Committee attempts to set base salary for the Company's executive officers
at levels that are competitive with compensation paid to top executives of
similarly situated biotechnology companies, and not significantly below cash
compensation available to the Company's key executives through alternative
employment. However, because of the Company's current and historical need to
conserve its cash resources, the
8
<PAGE> 11
Committee generally has allowed only moderate increases in cash compensation.
Rewards for Company or individual performance have generally taken the form of
stock-based awards.
The Committee administers the Company's 1994 Stock Incentive Plan,
pursuant to which the Company may grant various stock-based awards intended to
compensate Company personnel and align the interests of the recipients with
those of the Company's stockholders. To date, only stock options have been
granted under the Plan, although the Committee may, in the future, utilize other
types of incentive awards available under the Plan. (The Committee also
administers options previously granted under the Company's 1989 Incentive Stock
Option Plan and 1989 Nonstatutory Stock Option Plan.)
Because of the Company's need to conserve cash, the Committee has used
stock options to reward executives for individual and Company performance and to
provide incentives for vigorous pursuit of the Company's goals. In general,
executive officers receive a substantial grant of stock options upon joining the
Company. The Committee believes that these initial grants serve two purposes.
First, they help to make up for any discrepancy between the cash compensation
paid by the Company and salaries and bonuses available from more established
employers who would compete for the services of the Company's executives.
Second, the initial option grants are intended to give the recipients a
meaningful stake in the Company's long-term performance, with any ultimate
realization of significant value from those options being commensurate with
returns on investments in the Company's stock.
In addition to initial grants, executive officers are eligible to
receive option grants based upon the performance of the Company and their
individual progress during the preceding year. Such grants, if any, are
determined by the Committee in the latter part of each fiscal year with the
input and recommendation of the Company's Chief Executive Officer. In
determining award levels, the Committee emphasizes Company performance and the
contributions made by individual executives to that performance. The Committee
believes that such a retrospective analysis is most appropriate and practicable
for a development-stage biopharmaceutical enterprise like the Company, which
operates in an uncertain environment and without the same sorts of standard
measures of performance as are available to more seasoned companies.
The Company faces significant challenges in the coming years and will
rely heavily upon the Chief Executive Officer for leadership, strategic
direction, and operational effectiveness. During the remainder of the decade,
the Company's goals include succeeding in clinical trials for LJP 394 and
additional drug candidates, forming additional strategic alliances, raising
additional financing, and building a strong organization to support the
Company's anticipated growth. The Chief Executive Officer will have ultimate
responsibility for these goals as part of maximizing stockholders' returns on
their investments in the Company and the Committee believes stockholders are
best served if the Chief Executive Officer has significant incentives to meet
these expectations. In the round of option grants made in July 1996, the Chief
Executive Officer received an option to purchase up to 40,000 shares of Common
Stock in recognition of the Company's significant achievements, which included
completing Phase II clinical trials of the Company's lupus drug candidate with
positive results, planning of the next major clinical trial of the lupus drug,
progress in strategic alliance negotiations and development of the Company's
next drug candidates.
The Committee set the level of the option grants made to the Chief
Executive Officer on the basis of its qualitative evaluation of the Chief
Executive Officer's contributions. The Committee did not attempt to apply any
specific quantitative measures to the Chief Executive Officer's option-based
compensation, or to provide any specific dollar value of compensation to the
Chief Executive Officer, due to the difficulty of determining the long-term
value of an investment in the Company's stock.
COMPENSATION COMMITTEE
Thomas H. Adams, Ph.D.
William E. Engbers
Robert A. Fildes, Ph.D.
9
<PAGE> 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors consists
of Dr. Adams, Mr. Engbers and Dr. Fildes. No current member of the Compensation
Committee is a current or former officer or employee of the Company. There are
no Compensation Committee interlocks between the Company and other entities
involving the Company's executive officers and Board members who serve as
executive officers or Board members of such other entities.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Company's Common Stock for the period from June 3, 1994 (the date on which
the Company's Common Stock was first publicly traded) and ending on December 31,
1996 with the Center for Research in Securities Prices ("CRSP") Total Return
Index for the Nasdaq Stock Market (U.S. Companies) and the CRSP Total Return
Index for Nasdaq Pharmaceutical Stocks (comprising all companies listed in the
Nasdaq Stock Market under SIC 283). The graph assumes that $100 was invested on
June 3, 1994 in the Company's Common Stock and each index and that all dividends
were reinvested. No cash dividends have been declared on the Company's Common
Stock. Although the graph would normally cover a five-year period, the Company's
Common Stock has been publicly traded only since June 3, 1994, so the graph
commences as of such date. The comparisons in the graph are required by the
Securities and Exchange Commission and are not intended to forecast or be
indicative of possible future performance of the Company's Common Stock.
STOCK PERFORMANCE CHART FOR THE 1996 PROXY
<TABLE>
<CAPTION>
6/3/94 6/30/94 9/30/94 12/31/94 3/31/95 6/30/95
------ ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
La Jolla Pharmaceutical Company 100 100 55 45 55 79
Nasdaq - US 100 95 103 102 111 127
Nasdaq - Pharmaceuticals 100 91 103 97 104 121
</TABLE>
<TABLE>
<CAPTION>
9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96
------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
La Jolla Pharmaceutical Company 100 100 160 110 90 120
Nasdaq - US 143 144 151 163 169 177
Nasdaq - Pharmaceuticals 152 177 184 179 183 177
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the directors and
officers of the Company and persons who own more than 10% of the Company's
equity securities are required to report their initial ownership of the
Company's equity securities and any subsequent changes in that ownership to the
Securities and Exchange Commission and the Nasdaq National Market. Specific due
dates for these reports have been established, and the Company is required to
disclose in this Proxy Statement any late filings during the fiscal year ended
December 31, 1996. To the Company's knowledge, based solely on its review of the
copies of such reports required to be furnished to the Company during the fiscal
year ended December 31, 1996, all of these reports were timely filed.
10
<PAGE> 13
PROPOSAL 2
AMENDMENT TO THE COMPANY'S 1994 STOCK INCENTIVE PLAN
TO INCREASE AVAILABLE SHARES
The maximum number of shares of the Company's Common Stock that may be
issued pursuant to awards under the Company's 1994 Stock Incentive Plan is
currently 1,250,000, and options covering a total of 1,043,748 shares are
outstanding or have been exercised under the Plan. Accordingly, only 194,352
shares remain available for new grants. The Company relies heavily upon the Plan
to recruit, retain, and reward qualified employees and directors, and the
Company's Board of Directors has unanimously approved, subject to approval by
the Company's stockholders, an amendment of the Plan to make available an
additional 500,000 shares of the Company's Common Stock (subject to antidilution
adjustments) under the Plan.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Each of the present directors and executive officers designated from
time to time by the Plan's administrative committee is eligible to receive
awards under the Plan. Pursuant to the Plan, each of the director nominees, if
re-elected at the Meeting, will automatically receive an option to purchase up
to 3,000 shares of the Company's Common Stock on May 13, 1997, and on the dates
of future annual meetings if re-elected.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares present or represented
by proxy and entitled to vote at the Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal 2. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 2.
PROPOSAL 3
AMENDMENT TO THE COMPANY'S 1994 STOCK INCENTIVE PLAN
TO CONFORM WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code imposes restrictions on the
deductibility of executive compensation paid by public companies. Under these
restrictions, the Company is not able to deduct compensation paid to its Chief
Executive Officer and its other four most highly compensated executives in
excess of $1 million unless the compensation qualifies as "performance-based
compensation" as defined in the Code. These restrictions apply to compensation
relating to an award under the Company's 1994 Stock Incentive Plan. Although
current compensation is far below these levels, option gains are included in
compensation for these purposes and if the Company's stock increases
significantly in value, some executives could have compensation in excess of the
deductibility limit. Non-deductibility would result in additional tax costs to
the Company.
In an effort to prevent compensation relating to an award under the
Plan from being subject to the $1 million limit of Section 162(m), the Board
unanimously approved, subject to approval by the Company's stockholders,
amendments of the Plan intended to enable awards made thereunder to qualify as
"performance-based compensation." Such amendments would prohibit awards with
respect to more than 250,000 shares of Common Stock or in excess of $1 million
in any one calendar year if such award would otherwise be subject to Section
162(m). Furthermore, if Section 162(m) would otherwise apply and if the amount
of compensation an eligible person would receive under the award is not based
solely on an increase in the value of the underlying Common Stock of the Company
after the date of grant or award, the proposed amendment would authorize the
Plan's administrative committee to condition the grant, vesting, or
exercisability of such an award on the attainment of a preestablished objective
performance goal.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Although current compensation levels for the Chief Executive Officer
and the other four most highly compensated executives are far below $1 million,
the Section 162(m) limit could be reached if the Company's
11
<PAGE> 14
stock increases significantly in value. If the proposal is not approved, tax
regulations under the Code may limit awards to these persons under the Plan.
Approval of the proposal could result in greater awards under the Plan and other
compensation being paid to these persons through removal of any incentive the
Company may have to keep compensation below $1 million in order to preserve
deductibility.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares present or represented
by proxy and entitled to vote at the Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal 3. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 3.
SUMMARY OF THE 1994 STOCK INCENTIVE PLAN
The following is a summary of the principal features of the Plan as in
effect and proposed to be amended by Proposal 2 and Proposal 3.
Purpose and Eligibility. The purpose of the Plan is to advance the
interests of the Company and its stockholders by providing eligible persons with
financial incentives to promote the success of the Company's business
objectives, by increasing eligible persons' proprietary interest in the Company,
and by giving the Company a means to attract and retain directors of appropriate
experience and stature. Any officer, key employee, consultant or advisor of the
Company designated from time to time by the Plan's administrative committee is
eligible to receive grants of stock options, restricted stock, stock
appreciation rights, stock payments, performance awards of cash and/or stock,
and dividend equivalents under the Plan. Currently, it is estimated that
approximately 88 persons are eligible for selection.
Stock Options. Stock options granted under the Plan ("Options") may be
incentive stock options, which are intended to qualify under the provisions of
Section 422 of the Internal Revenue Code ("Incentive Options"), or non-qualified
stock options, which do not so qualify ("Non-qualified Options"). The exercise
price for each Option (other than non-employee directors' options) shall be
determined by the Committee at the date of grant. The exercise price of each
Option granted under the Plan generally may not be set below the fair market
value of the underlying Common Stock on the date of grant, subject to
permissible discounts of up to 15% from fair market value for Non-qualified
Options in lieu of salary or bonus. The exercise price of any Option may be paid
in cash or any other consideration the Committee deems acceptable, including
delivery of capital stock of the Company (surrendered by the optionee or
withheld from the shares otherwise deliverable upon exercise) or surrender of
other awards previously granted to the recipient exercising the Option. The
Committee may allow the Company to loan the exercise price to the optionee
and/or to allow exercise in a broker-assisted transaction in which the exercise
price will not be received until after exercise, if the exercise of the Option
is followed by an immediate sale of some of the underlying shares and a portion
of the sales proceeds is dedicated to full payment of the exercise price.
Options (other than non-employee directors' options) granted under the
Plan vest, become exercisable, and terminate as determined by the Committee. All
Options granted under the Plan may be exercised at any time after they vest and
before their expiration date, provided that no Option may be exercised more than
ten years after its grant. In the absence of a specific written agreement to the
contrary, an employee's Options will generally terminate (a) immediately upon
termination of the recipient's employment with the Company for just cause; (b)
12 months after death or permanent disability; (c) 24 months after normal
retirement; and (d) three months in the case of Incentive Stock Options, and six
months in the case of Non-qualified Stock Options, after termination of
employment for any other reason, in each case subject to earlier termination on
the Option's original expiration date. Notwithstanding the foregoing, however,
the Committee may designate shorter or longer periods after termination of
employment to exercise any Option (other than a non-employee directors' option).
Options cease to vest upon termination of employment, but the Committee may
accelerate the vesting of any or all Options that had not become exercisable on
or prior to the date of such termination.
Other Awards. In addition to Options, the Committee may also grant
performance awards, restricted stock, stock appreciation rights ("SARs"), stock
payments and dividend equivalents. Performance awards entitle
12
<PAGE> 15
the recipient to a payment in cash or in shares of Common Stock upon the
satisfaction of certain performance criteria. Shares of restricted stock may be
granted by the Committee to recipients who may not transfer the restricted
shares until the restrictions are removed or expire. Stock appreciation rights,
either related or unrelated to Options, entitle the recipient to payment of the
difference between the fair market value of a share of Common Stock and the
related exercisable Option or initial base amount, multiplied by the number of
shares as to which such SAR is exercised. The Committee may also approve stock
payments of the Company's Common Stock to any eligible person or grant dividend
equivalents payable in cash, Common Stock, or other awards to recipients of
Options, SARs, or other awards denominated in shares of Common Stock. For all
such awards, the Committee shall generally determine the relevant criteria,
terms, and restrictions.
Non-employee Directors' Options. Under the Plan, each of the Company's
non-employee directors automatically receives, upon becoming a non-employee
director, a one-time grant of an option to purchase up to 20,000 shares of the
Company's Common Stock at an exercise price equal to the fair market value of a
share of the Common Stock on the date of grant. These options have a term of ten
years and vest with respect to 25% of the underlying shares on the grant date
and with respect to an additional 25% of the underlying shares on the date of
each of the first three annual stockholders' meetings following the grant date
(or, if an annual meeting occurs within six months after the grant date, then on
the second, third and fourth anniversaries of the grant date), but only if, on
the date of each such annual meeting, the recipient is continuing as a director
for the ensuing year.
Further, each non-employee director of the Company, upon each
re-election to the Board, will automatically receive a grant of an additional
option to purchase up to 3,000 additional shares of the Company's Common Stock.
These options have a term of ten years and will vest and become exercisable upon
the earlier to occur of (i) the first anniversary of the grant date or (ii)
immediately prior to the annual meeting of stockholders of the Company next
following the grant date, if the director has served as a director from the
grant date to such earlier date. The exercise price for these options is the
fair market value of the Company's Common Stock on the date of their grant.
Plan Provisions Regarding Section 162(m) of the Internal Revenue Code.
In general, Section 162(m) of the Code imposes a $1 million limit on the amount
of compensation that may be deducted by the Company in any tax year with respect
to the Chief Executive Officer of the Company and its other four most highly
compensated employees, including any compensation relating to an award under the
Plan. If Proposal 3 is presented and approved, compensation relating to an award
under the Plan will not be subject to the $1 million limit of Section 162(m).
Under the Proposal 3 amendment, no one person will be granted any awards with
respect to more than 250,000 shares of Common Stock or in excess of $1 million
in any one calendar year if such grant would otherwise be subject to Code
Section 162(m). Furthermore, if Code Section 162(m) would otherwise apply and if
the amount of compensation a person would receive under an award is not based
solely on an increase in the value of the underlying Common Stock of the Company
after the date of grant or award, the Plan's administrative committee will be
authorized to condition the grant, vesting, or exercisability of such an award
on the attainment of a preestablished objective performance goal. The Proposal 3
amendment defines a preestablished objective performance goal to include one or
more of the following performance criteria: (a) cash flow, (b) earnings per
share (including earnings before interest, taxes, and amortization), (c) return
on equity, (d) total stockholder return, (e) return on capital, (f) return on
assets or net assets, (g) income or net income, (h) operating margin, (i) return
on operating revenue, (j) attainment of stated goals related to the Company's
research and development or clinical trials program, (k) attainment of stated
goals related to the Company's capitalization, costs, financial condition or
results of operations, and (l) any other similar performance criteria.
Securities Subject to Plan. No more than 1,250,000 shares of Common
Stock (1,750,000 shares if Proposal 2 is approved) may be issued pursuant to or
upon exercise of awards granted under the Plan. Shares of Common Stock subject
to unexercised portions of any award that expire, terminate or are canceled, and
shares of Common Stock issued pursuant to an award that are reacquired by the
Company pursuant to the terms of the award under which the shares were issued,
will again become eligible for the grant of further awards under the Plan. The
number and kind of shares of Common Stock or other securities available under
the Plan in general, as well as the number and kind of shares of Common Stock or
other securities subject to outstanding awards and the exercise price per share
of such awards, may be proportionately adjusted to reflect stock splits, stock
dividends, and other capital stock transactions. If the Company is the surviving
corporation in any merger or consolidation, each outstanding Option will entitle
the optionee to receive the same consideration received by holders of the same
13
<PAGE> 16
number of shares of the Company's Common Stock in such merger or consolidation.
In the event of a change in control, all non-employee directors' options and any
other awards specified by the Committee or the Board of Directors shall
immediately vest and become exercisable, and all conditions thereto shall be
deemed to have been met. For purposes of the Plan, a change in control includes
a reorganization, merger or consolidation in which more than 50% of voting
securities of the Company are not represented by holders of such securities
prior thereto; or a liquidation or dissolution of the Company; or the
acquisition of more than 40% or more of the Company's voting securities by any
person; or a majority change in Board membership without Board approval. On
March 17, 1997, the market value of the Company's Common Stock was $4.875 per
share, options to purchase 11,900 shares had been exercised under the Plan,
Options to purchase 1,168,925 shares were outstanding under the Plan at exercise
prices ranging from $2.00 to $8.31 per share, and 194,352 shares remained
available for future awards under the Plan. If Proposal 2 is approved, an
additional 500,000 shares will be available for future awards under the Plan.
Administration, Amendment and Termination. The Plan is administered by
a committee (the "Committee") of at least three non-employee directors of the
Company appointed by the Company's Board, each of whom is required to be
"disinterested" within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended. The Committee has the authority to interpret the Plan
and any agreements defining the rights and obligations of recipients of awards
granted under the Plan; to determine the terms and conditions of awards; to
prescribe, amend and rescind the rules and regulations of the Plan; and to make
all other determinations necessary or advisable for the administration of the
Plan. Under the Proposal 3 amendment, if awards are to be made to persons
subject to Section 162(m) and such awards are intended to constitute
performance-based compensation, then each of the Committee's members must be an
"outside director," as such term is defined in Section 162(m).
The Committee, in its discretion, selects from the class of eligible
persons those individuals to whom awards will be granted and determines the
nature, dates, amounts, exercise prices, vesting periods, and other relevant
terms of such awards. The Committee may, with the consent of the recipient of an
award, modify the terms and conditions, accelerate or extend the vesting or
exercise period, and adjust or reduce the purchase price of such award. However,
the Committee has no authority or discretion with respect to recipients, timing,
vesting, underlying shares or exercise price of non-employee directors' options,
which matters are specifically governed by the provisions of the Plan. Awards
may be granted under the Plan until the tenth anniversary of the Plan's
effective date.
Federal Income Tax Consequences. The following is a brief description
of the federal income tax treatment which will generally apply to Options and
other awards granted under the Plan, based on federal income tax laws in effect
on the date of this proxy statement. The exact federal income tax treatment of
Options and other awards will depend on the specific circumstances of the
recipient. No information is provided herein with respect to estate,
inheritance, gift, state or local tax laws, although there may be certain tax
consequences upon the receipt or exercise of an option or other award or the
disposition of any acquired shares under those laws.
Incentive Options. Generally, the optionee is not taxed and the Company
is not entitled to a deduction on the grant or the exercise of an Incentive
Option. If the optionee sells the shares acquired upon the exercise of an
Incentive Option ("Incentive Option Shares") at any time after the later of (a)
one year after the date of transfer of shares to the optionee pursuant to the
exercise of such Incentive Option or (b) two years after the date of grant of
such Incentive Option (the "Incentive Option holding period"), then the optionee
will recognize capital gain or loss equal to the difference between the sales
price and the exercise price paid for the Incentive Option Shares, and the
Company will not be entitled to any deduction. If the optionee disposes of the
Incentive Option Shares at any time during the Incentive Option holding period,
then (1) the optionee will recognize capital gain in an amount equal to the
excess, if any, of the sales price over the fair market value of the Incentive
Option Shares on the date of exercise, (2) the optionee will recognize ordinary
income equal to the excess, if any, of the lesser of the sales price or the fair
market value of the Incentive Option Shares on the date of exercise, over the
exercise price paid for the Incentive Option Shares, (3) the optionee will
recognize capital loss equal to the excess, if any, of the exercise price paid
for the Incentive Option Shares over the sales price of the Incentive Option
Shares, and (4) the Company will generally be entitled to a deduction in an
amount equal to the amount of ordinary income recognized by the optionee.
14
<PAGE> 17
For purposes of computing an optionee's "alternative minimum tax," an
Incentive Option is treated as a Non-qualified Option, as discussed below. Thus,
the amount by which the fair market value of Incentive Option Shares on the date
of exercise (or such later date as discussed below under "Special Rules for
Insiders") exceeds the exercise price will be included as a positive adjustment
in the calculation of an optionee's "alternative minimum taxable income"
("AMTI"). The "alternative minimum tax" imposed on individual taxpayers is
generally equal to the amount by which 26% or 28% (depending on the optionee's
AMTI) of the individual's AMTI (reduced by certain exemption amounts) exceeds
his or her regular income tax liability for the year. A taxpayer's alternative
minimum tax attributable to this spread may be credited against the taxpayer's
regular tax liability in later years to the extent that the regular tax
liability exceeds the alternative minimum tax in any such year.
Non-qualified Options. The grant of a Non-qualified Option is generally
not a taxable event for the optionee. Upon exercise of the option, the optionee
will generally recognize ordinary income in an amount equal to the excess of the
fair market value of the stock acquired upon exercise of the Non-qualified
Option ("Non-qualified Option Shares") (determined as of the date of the
exercise) over the exercise price of such option, and the Company will be
entitled to a deduction equal to such amount. See "Special Rules for Insiders,"
below. A subsequent sale of the Non-qualified Option Shares generally will give
rise to capital gain or loss equal to the difference between the sales price and
the sum of the exercise price paid for such shares plus the ordinary income
recognized with respect to such shares. Such gain or loss will be treated as
short-term or long-term depending on the optionee's holding period for the
shares involved in the disposition. If an optionee receives a Non-qualified
Option having an exercise price that is only a small fraction of the value of
the underlying Non-qualified Option Shares on the date of grant, such optionee
may be required to include the value of the option in taxable income at the time
of grant.
Special Rules for Insiders. If an optionee is a director, officer or
stockholder subject to Section 16 of the Securities Exchange Act of 1934 (an
"Insider") and exercises an Option within six months of the date of grant, the
timing of the recognition of any ordinary income should be deferred until (and
the amount of ordinary income should be determined based on the fair market
value (or sales price in the case of a disposition) of the Common Stock upon)
the earlier of the following two dates: (i) six months after the date of grant
or (ii) a disposition of the Common Stock, unless the Insider makes an election
under Section 83(b) of the Code (an "83(b) Election") within 30 days after
exercise to recognize ordinary income based on the value of the Common Stock on
the date of exercise. In addition, special rules apply to an Insider who
exercises an option having an exercise price greater than the fair market value
of the underlying Common Stock on the date of exercise.
Restricted Stock. Unless the recipient makes an 83(b) Election within
30 days after the receipt of the restricted stock, the recipient is not taxed
and the Company is not entitled to a deduction until the restriction lapses, and
at that time the recipient will recognize ordinary income equal to the
difference between the then fair market value of the Common Stock and the
amount, if any, paid by the recipient for the Common Stock, and the recipient's
tax basis in the Common Stock will equal the then fair market value of the
Common Stock. If the recipient makes a timely 83(b) Election, the recipient will
recognize ordinary income at the time of the election equal to the difference
between the fair market value of the restricted stock on the date of grant and
the amount, if any, paid by the recipient for the Common Stock, and the
recipient's tax basis in the Common Stock will equal the fair market value of
the Common Stock on the grant date. Any subsequent sale of the Common Stock by
the recipient generally will, depending upon the length of the holding period
beginning just after the date the restriction on the Common Stock lapses or
where an 83(b) Election is made just after the grant date, be treated as long or
short term capital gain (loss) equal to the difference between the sale price
(the recipient's tax basis) and the recipient's tax basis (sale price). The
Company generally will be entitled to a deduction in an amount equal to the
ordinary income recognized by the recipient.
Performance Awards and SARs. Generally, the recipient of a performance
award or a holder of an SAR will recognize ordinary income equal to the amount
paid by the Company under either arrangement on the date the recipient or holder
receives payment from the Company. If the Company places a limit on the amount
that will be payable under an SAR, the holder may recognize ordinary income
equal to the value of the holder's right under the SAR at the time the value of
such right equals such limit and the SAR is exercisable. The Company will
generally be entitled to a deduction in an amount equal to the ordinary income
recognized by the recipient or holder.
15
<PAGE> 18
Miscellaneous Tax Issues. Special rules will apply in cases where an
optionee pays the exercise or purchase price of the Option or applicable
withholding tax obligations under the Plan by delivering previously owned Common
Stock or by reducing the amount of Common Stock otherwise issuable pursuant to
the Option. The surrender or withholding of such shares will in certain
circumstances result in the recognition of income with respect to such shares.
The Plan provides that, in the event of certain changes in ownership or control
of the Company, the right to exercise Options otherwise subject to a vesting
schedule may be accelerated. In the event such acceleration occurs and depending
upon the individual circumstances of the recipient, certain amounts with respect
to such Options may constitute "excess parachute payments" under the "golden
parachute" provisions of the Internal Revenue Code. Pursuant to these
provisions, a recipient will be subject to a 20% excise tax on any "excess
parachute payments" and the Company will be denied any deduction with respect to
such payment. Subject to stockholder approval of Proposal 3, the Company may be
denied a deduction for compensation (including compensation attributable to
Options) to certain officers of the Company to the extent the compensation
exceeds $1 million in a given year.
STOCKHOLDER PROPOSALS
Stockholders who wish to have proposals for action at the Company's
1998 Annual Meeting of Stockholders considered for inclusion in next year's
proxy statement and form of proxy must cause their proposals to be received in
writing by the Company at its address set forth on the first page of this Proxy
Statement no later than December 8, 1997. Such proposals should be addressed to
the Company's Secretary, and may be included in next year's proxy materials if
they comply with certain rules and regulations promulgated by the Securities and
Exchange Commission.
OTHER MATTERS
The Board of Directors of the Company does not know of any other
matters that are to be presented for action at the Meeting. Should any other
matters come before the Meeting or any adjournments and postponements thereof,
the persons named in the enclosed proxy will have the discretionary authority to
vote all proxies received with respect to such matters in accordance with their
judgment.
INDEPENDENT PUBLIC AUDITORS
By selection of the Company's Board of Directors, the firm of Ernst &
Young LLP has served as the Company's auditor since its incorporation in 1989.
The Board of Directors has again selected Ernst & Young LLP to serve as the
Company's independent auditors for the fiscal year ending December 31, 1997. One
or more representatives of Ernst & Young LLP are expected to be present at the
Meeting and will have any opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
ANNUAL REPORT
The Company's 1997 Annual Report to Stockholders has been mailed to
stockholders concurrently with this Proxy Statement, but such report is not
incorporated herein and is not deemed to be a part of this proxy solicitation
material.
San Diego, California
April 7, 1997
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES ON, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS
HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED.
16
<PAGE> 19
[FRONT SIDE OF PROXY CARD]
LA JOLLA PHARMACEUTICAL COMPANY
6455 NANCY RIDGE DRIVE
SAN DIEGO, CA 92121
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph Stemler and Steven B. Engle, and
each of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote as designated on the reverse
all shares of Common Stock of La Jolla Pharmaceutical Company (the "Company")
held of record by the undersigned on March 17, 1997 at the Annual Meeting of
Stockholders to be held on May 13, 1997, and at any postponements and
adjournments thereof. The proposals referred to on the reverse side of this
proxy are described in the Proxy Statement for the Annual Meeting of
Stockholders dated March 31, 1997.
CONTINUED ON THE REVERSE SIDE AND IS TO BE SIGNED
[REVERSE SIDE OF PROXY CARD]
A [X] Please mark your
votes as in this
example.
<TABLE>
<CAPTION>
WITHHOLD
FOR all nominees AUTHORITY
listed at right to vote for all
(except as marked to nominees listed
the contrary below) at right Nominees:
<S> <C> <C> <C>
1. ELECTION OF [ ] [ ] Thomas H. Adams, Ph.D.
DIRECTORS William E. Engbers
Steven B. Engle
Robert A. Fildes, Ph.D.
Joseph Stemler
W. Leigh Thompson, M.D., Ph.D.
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, LINE
THROUGH OR OTHERWISE STRIKE OUT THE NOMINEE'S NAME AT RIGHT.)
2. Approval of an amendment to the La Jolla Pharmaceutical Company 1994 Stock
Incentive Plan to increase by 500,000 the total number of shares of the
Company's Common Stock that may be issued pursuant to such plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of amendments to the La Jolla Pharmaceutical Company 1994 Stock
Incentive Plan to limit awards to the CEO and each of the other four most
highly compensated executives to 250,000 option shares and $1 million in
performance awards in any calendar year, and to specify certain performance
criteria for awards to such persons, all in an effort to preserve the
Company's ability to take income tax deductions for compensation in excess
of $1 million paid to such persons in any calendar year by qualifying awards
under the plan to such persons as "performance based compensation" under
Section 162(m) of the Internal Revenue Code.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE THIS PROXY
WILL BE VOTED FOR THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2
AND 3.
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
SIGNATURE DATE
---------------------------------------------- ---------------
SIGNATURE DATE
---------------------------------------------- ---------------
IF HELD JOINTLY
Please sign exactly as your name appears hereon. When shares are held by joint
tenants both should sign. When signing as attorney-in-fact, executor,
administrator, trustee or guardian, please sign as such and include such title.
If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
