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
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ORPHAN MEDICAL, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions 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>
[LOGO] ORPHAN MEDICAL
13911 RIDGEDALE DRIVE, SUITE 475
MINNETONKA, MINNESOTA 55305
TELEPHONE (612) 513-6900
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 26, 1999
The Annual Meeting of Shareholders of Orphan Medical, Inc. (the
"Company") will be held Wednesday, May 26, 1999, at 3:30 p.m. (Central Standard
Time), at the Radisson Plaza Hotel, 35 South 7th Street, Minneapolis, Minnesota
55402, for the following purposes:
1. To elect six directors to serve until the next Annual Meeting of
Shareholders;
2. To ratify an amendment to the Company's 1994 Stock Option Plan
increasing from 1,550,000 to 1,925,000 the number of shares of the
Company's Common Stock reserved for issuance thereunder;
3. To ratify the selection of Ernst & Young LLP as the independent
public accountants of the Company for the fiscal year ending
December 31, 1999; and
4. To consider and act upon any other business that may properly come
before the meeting or any adjournment thereof.
The Board of Directors of the Company has designated the close of
business on March 30, 1999 as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting or any adjournment
thereof. Only shareholders of record of the Company's Common Stock and Senior
Convertible Preferred Stock at the close of business on that date will be
entitled to vote.
You are cordially invited to attend the meeting. However, whether or
not you plan to be personally present at the meeting, please complete, date and
sign the enclosed proxy and return it promptly in the enclosed envelope. If you
later desire to revoke your proxy, you may do so at any time before it is
exercised.
By Order of the Board of Directors
/s/ John Howell Bullion
-----------------------
John Howell Bullion
Chairman of the Board, Chief Executive
Officer and Secretary
Minnetonka, Minnesota
April 9, 1999
<PAGE>
ORPHAN MEDICAL, INC.
13911 RIDGEDALE DRIVE, SUITE 475
MINNETONKA, MINNESOTA 55305
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 26, 1999
GENERAL
This Proxy Statement is furnished in connection with the
solicitation of the enclosed proxy by the Board of Directors of Orphan Medical,
Inc. (the "Company") for use at the Annual Meeting of Shareholders (the "Annual
Meeting") to be held on Wednesday, May 26, 1999, at 3:30 p.m. (Central Standard
Time), at the Radisson Plaza Hotel, 35 South 7th Street, Minneapolis, Minnesota
55402, and at any adjournment thereof, for the purposes set forth in the Notice
of Annual Meeting of Shareholders. This Proxy Statement and the form of proxy
enclosed are being mailed to shareholders with the Company's Annual Report to
Shareholders commencing on or about April 9, 1999.
The only matters the Board of Directors knows will be presented are those stated
in Proposals 1, 2 and 3 of this Proxy Statement. THE BOARD OF DIRECTORS
RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF PROPOSALS 1, 2 AND 3. Should any
other matter properly come before the meeting, it is intended that the persons
named in the enclosed proxy will have authority to vote such proxy in accordance
with their judgment on such matter.
VOTING RIGHTS AND PROCEDURES
Common Stock and Senior Convertible Preferred Stock shareholders
(collectively, the "shareholders") of record at the close of business on March
30, 1999 will be entitled to vote at the Annual Meeting or any adjournments. As
of that date, a total of 6,562,707 shares of such Common Stock and 7,798 shares
of Senior Convertible Preferred Stock were outstanding (collectively, the
"Voting Stock"), each share of Common Stock being entitled to one vote and each
share of Senior Convertible Preferred Stock being entitled to voted on an "as
converted" basis. On March 30, 1999, the Company's Senior Convertible Preferred
Stock was convertible into an aggregate of 917,411 shares of Common Stock on an
"as converted" basis, which approximates 117.647 shares of Common Stock for each
share of Senior Convertible Preferred Stock. There is no cumulative voting. If a
shareholder returns a proxy withholding authority to vote the proxy with respect
to a nominee for director, then the shares of the Voting Stock covered by such
proxy shall be deemed present at the Annual Meeting for purposes of determining
a quorum and for purposes of calculating the vote with respect to such nominee,
but shall not be deemed to have been voted for such nominee. If a shareholder
abstains from voting as to any matter, then the shares held by such shareholder
shall be deemed present at the meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter, but shall not
be deemed to have been voted in favor of such matter. If a broker returns a
"non-vote" proxy, indicating a lack of authority to vote on such matter, then
the shares covered by such non-vote shall be deemed present at the Annual
Meeting for purposes of determining a quorum, but shall not be deemed to be
present and entitled to vote at the Annual Meeting for purposes of calculating
the vote with respect to such matter.
Shares of the Company's Common Stock and Senior Convertible
Preferred Stock represented by proxies in the form solicited will be voted in
the manner directed by a shareholder. If no direction is given, the proxy will
be voted for the election of the nominees for director named in this Proxy
Statement, for approval of the amendment to the Company's 1994 Stock Option Plan
and for approval of the selection of Ernst & Young LLP as the Company's
independent public accountants. So far as the management of the
<PAGE>
Company is aware, no matters other than those described in this Proxy Statement
will be acted upon at the Annual Meeting. In the event that any other matters
properly come before the Annual Meeting and call for a vote of shareholders, the
persons named as proxies in the enclosed form of proxy will vote in accordance
with their best judgment on these matters. A proxy may be revoked at any time
before being exercised by delivery to an officer of the Company of a written
notice of termination of the proxy's authority or a duly elected proxy bearing a
later date.
PROPOSAL 1: ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
The business and affairs of the Company are managed under the
direction of its Board of Directors, which is presently comprised of six
members. Six directors have been nominated for election to the Company's Board
of Directors at the Annual Meeting to hold office until the next Annual Meeting
of Shareholders or until their successors are duly elected and qualified.
The Company's incumbent directors, John Howell Bullion, Michael
Greene, W. Leigh Thompson, Ph.D., M.D., Julius A. Vida, Ph.D., William M.
Wardell, M.D., Ph.D., and Lawrence C. Weaver, Ph.D., D.Sc. (Hon.), are being
nominated for election at the Annual Meeting. Each of Messrs. Bullion and Greene
and Drs. Thompson, Vida, Wardell and Weaver have indicated a willingness to
serve, but in case any of them is not a candidate at the Annual Meeting, the
person named as proxy in the enclosed form of proxy may vote for a substitute
nominee in their discretion. Information concerning the director nominees is set
forth below.
JOHN HOWELL BULLION Mr. Bullion, 47, has been Chief Executive Officer of the
Company since June 1994 and Chairman of the Board of
Directors since December 30, 1998. Mr. Bullion is a
co-founder of Chronimed Inc., the company from which
Orphan Medical, Inc. was spun off in 1994. He has been a
director of Chronimed since 1985. Prior to joining
Orphan Medical, Mr. Bullion served as President of
Bluestem Partners, an investment and consulting company;
Dahl & Associates, a soil and ground water remediation
company; and Concurrent Knowledge Systems, Inc., a
software development company. Mr. Bullion also served as
partner and Vice President with First Bank System
Venture Capital Company for seven years.
MICHAEL GREENE Mr. Greene, 37, has been a director of the Company since
July 1998. Mr. Greene is a partner at UBS Capital, LLC
("UBS") and has been with UBS since it was founded in
1993. Prior to joining UBS, Mr. Greene was a senior
member of the Union Bank of Switzerland's Leveraged
Finance Group from 1990 to 1992. Mr. Greene is a
graduate of The College of Holy Cross with a B.A. in
Economics and earned an M.B.A. from Harvard Business
School. Mr. Greene also serves as a director for
Metrocall Inc., and Desa International.
W. LEIGH THOMPSON, Dr. Thompson, 60, has been a director of the Company
PH.D., M.D. since August 1995. Dr. Thompson is President and Chief
Executive Officer of Profound Quality Resources, Ltd.,
which provides worldwide consulting services to health
institutions and manufacturers. From 1982 through 1995,
Dr. Thompson held a number of executive positions with
Eli Lilly and Company, where he had responsibility for
animal and human product research, including Chief
Scientific Officer, Director, Executive Director, Vice
President, Group Vice President and Executive Vice
President. Prior to Eli Lilly and Company, Dr. Thompson
was Professor of Medicine at Case Western Reserve
University. Dr. Thompson also serves on the boards of
BAS, Inc., Corvas International, DepoMed,, Guilford
Pharmaceuticals, Inspire Pharmaceuticals, LaJolla
Pharmaceuticals, Maret Corporation, Medarex, Ontogeny
and Ophidian Pharmaceuticals.
2
<PAGE>
JULIUS A. VIDA, PH.D. Dr. Vida, 70, has been a director of the Company since
October 1998. Dr. Vida is the President of Vida
International Pharmaceutical Consultants, which was
founded in 1993. Dr. Vida also serves as a director for
Biomatrix, Inc. and SuperGen, Inc. Past employment
includes over 15 years experience with Bristol Myers
Squibb Co., last serving as Vice President, Business
Development, Licensing and Strategic Planning from 1991
to 1993. Dr. Vida earned his Ph.D. from the Carnegie
Institute of Technology and his M.B.A. from Columbia
University.
WILLIAM M. WARDELL, Dr. Wardell, 60, has been a director of the Company
M.D., PH.D. since August 1995. Since January 1996, Dr. Wardell has
been with Covance, Inc. (formerly Corning-Besselaar), a
contract research organization, where he is the Senior
Scientific Officer. Dr. Wardell also serves as a
director for PharMetrics, Inc. From January 1995 to
January 1996, Dr. Wardell was President of Wardell
Associates International, a pharmaceutical consulting
firm. Prior to 1995, Dr. Wardell served as President of
Protein Engineering Corporation, a privately held
biotechnology company. Prior to joining Protein
Engineering Corporation, Dr. Wardell was Senior Vice
President of the Parke-Davis Pharmaceutical Research
Division of Warner Lambert Company. From 1983 to 1991,
Dr. Wardell was Vice President/Medical Director of
Boeringer Ingelheim Pharmaceuticals, Inc. and was a
member of Boeringer Ingelheim's International Steering
and Medical Committees, which had responsibility for
worldwide research, development, clinical and regulatory
programs. Prior to entering the pharmaceutical industry,
Dr. Wardell was Associate Professor of Pharmacology and
Toxiology and Assistant Professor of Medicine at the
University of Rochester Medical Center. Dr. Wardell has
also been a Commissioner of the Pharmaceutical
Manufacturers Association's Commission on Drugs for Rare
Diseases, and a Vice President and Board member of the
American Society for Clinical Pharmacology and
Therapeutics.
LAWRENCE C. WEAVER, Dr. Weaver, 75, has been a director of the Company and
PH.D., D.SC. (HON.) Chairman of its Advisory Board since August 1994. Dr.
Weaver also serves as a director for Zinpro Corporation,
Zinpro Animal Nutrition, Inc., and is Chairman of
Chronimed's Advisory Board. Dr. Weaver has been Dean and
Professor Emeritus at the University of Minnesota since
1989. Dr. Weaver served as Dean of the College of
Pharmacy at the University of Minnesota from 1966
through 1984, and as the Interim Dean from 1994 through
1996. From 1984 through 1989, Dr. Weaver was Vice
President for Professional Relations of the
Pharmaceutical Manufacturers Association ("PMA") and
Executive Director of the PMA Commission on Rare
Diseases. Prior to 1966, Dr. Weaver held various
scientific and management positions in the
pharmaceutical industry. Dr. Weaver has received the FDA
Commissioners Award and other awards for his work in the
orphan drug area, has organized several international
symposia on orphan drugs and participated in the
founding of other orphan drug companies.
The affirmative vote of a majority of the shares of Voting Stock
present and entitled to vote at the Annual Meeting is necessary to elect the
nominees for director. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF MESSRS. BULLION AND GREENE AND DRS. THOMPSON, VIDA, WARDELL AND WEAVER.
3
<PAGE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During 1998, the Board of Directors of the Company held six
meetings. The Board of Directors has established an Audit Committee consisting
of Mr. Greene and Drs. Vida and Weaver, a Compensation Committee consisting of
Mr. Greene and Drs. Wardell and Weaver and a Regulatory Oversight Committee
consisting of Drs. Thompson, Wardell and Weaver. The Audit Committee's function
is to review and make recommendations to the Board of Directors with respect to
certain financial and accounting matters. The Audit Committee met once during
1998. The Compensation Committee's function is to review and make certain
determinations with respect to matters concerning the remuneration of employees,
officers and directors. The Compensation Committee met three times during 1998.
The Regulatory Oversight Committee's function is to keep the Board informed on
matters pertaining to the Company's regulatory compliance. The Regulatory
Oversight Committee met four times during 1998. The Board of Directors does not
have a standing nominating committee. Each director attended at least 75 percent
of the meetings of the Board of Directors and committees upon which such
director served during 1998.
The Board of Directors has also established an Advisory Board
consisting of eight individuals that advise the Company with respect to the
planning or execution of its product acquisition and development programs. Each
of the members of the Advisory Board has development or marketing expertise with
respect to products under development by the Company. Members of the Advisory
Board provide services to the Company on a nonexclusive basis and do not meet on
a formal or regular basis. The Company consults with one or more members of the
Advisory Board from time to time by means of meetings or telephone conference
calls. Dr. Weaver, who is Chairman of the Advisory Board, is the only director
of the Company who is also an Advisory Board member.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $10,000
annually for serving on the Board of Directors, plus a $200 fee for each meeting
and a $100 fee for each telephone meeting attended. Directors are also
reimbursed for out-of-pocket expenses incurred in attending Board of Directors'
and committee meetings.
In addition, pursuant to the Company's 1994 Stock Option Plan (the
"Stock Plan"), each new non-employee director automatically receives an option
to purchase 25,000 shares on the date of such director's initial election to the
Board of Directors. Each such option has an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant and a term of
ten years. In August 1994, pursuant to the Stock Plan, Dr. Weaver was granted
options to purchase 25,000 shares exercisable at $5.00 per share. Dr. Weaver was
also granted an option to purchase an additional 10,000 shares of Common Stock
exercisable at $5.00 per share in recognition of his efforts relating to the
Advisory Board. In August 1995, pursuant to the Stock Plan, Drs. Thompson and
Wardell were granted options to purchase 25,000 shares of Common Stock
exercisable at $7.625 per share. In June 1998, Drs. Thompson and Wardell were
granted options to purchase an additional 12,500 and 15,000 shares of Common
Stock, respectively, exercisable at $6.125 per share in recognition of their
efforts relating to various matters pertaining to the Company's Busulfex and
Xyrem clinical trial programs. In September 1998, Mr. Greene was granted options
to purchase 25,000 shares exercisable at $7.8125 per share. In October 1998, Dr.
Vida was granted options to purchase 25,000 shares exercisable at $6.625 per
share. Directors who are employees of the Company receive no additional
compensation for serving as directors.
4
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Compensation Committee determines the policies for and structure
and amount of all compensation for the Board of Directors and the executive
officers of the Company. The Compensation Committee's goal is to establish
compensation policies and programs that will attract and retain qualified
executives and align their financial interests closely with long-term
shareholder interests. The Compensation Committee is composed entirely of
directors who are not employees of the Company.
The Company has a "pay for performance" compensation program for its
executive officers. The compensation program is designed to motivate and reward
executives responsible for attaining the financial and strategic objectives
essential to the Company's success and continued growth, while at the same time
allowing the Company to attract and retain high-caliber executives. The
Company's compensation practices reward executives commensurately with their
ability (1) to meet the Company's established financial targets and other goals,
through cash bonuses, and (2) to drive increases in shareholder value, through
stock options.
A central feature of the Company's compensation program is its
emphasis on objective performance incentives. The Company's practice has been to
establish annual financial performance targets and other goals at the outset of
each year with the Compensation Committee, and to pay bonuses based on
performance against these pre-established targets. In 1999, the Company expects
to establish base salaries and annual bonus targets for its executive officers
that are generally average in comparison to its peer companies. Achievement of
these objective annual financial targets and other goals, is expected to give
executives an opportunity to earn above average compensation based on
performance.
An additional aspect of the Company's compensation program is its
use of stock options. Through the use of stock based incentives, the Company
believes that an executive officer's interests will be aligned with the
long-term interests of its shareholders. Executive officers are, thereby, given
an incentive to not only meet their annual performance objectives, but also to
achieve longer term strategic goals.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The key components of the Company's compensation program for its
executive officers are (a) base salary, (b) annual cash bonus compensation, (c)
long-term incentive compensation in the form of stock options and (d) a 401(k)
plan and certain medical and miscellaneous fringe benefits.
BASE SALARY. The Chief Executive Officer makes annual
recommendations to the Compensation Committee regarding the base salaries for
the executive officers (other than the Chief Executive Officer). In making base
salary recommendations, the Chief Executive Officer takes into account
individual experience and performance, as well as specific issues particular to
the Company. The Compensation Committee generally approves the Chief Executive
Officer's base salary recommendations.
The Chief Executive Officer reviewed the base salary of each
executive officer in 1998. In determining the appropriate base salary for 1999,
an executive officer's base salary for the previous year and individual
performance, including performance in relation to performance targets for the
current fiscal year, were considered. The Company believes it has established
1999 base salaries for its executive officers that are consistent with its
compensation philosophy.
Mr. Bullion, Chief Executive Officer, has an employment agreement
with the Company that provides for an annual base salary of $175,000. During
1997, Mr. Bullion voluntarily reduced his base salary to $110,000 on an
annualized basis through October 1998 and increased his base salary to $160,000
on an annualized basis from November 1998. The Compensation committee has not
reviewed Mr. Bullion's base salary for 1999. However, unless Mr. Bullion decides
to forgo his employment agreement rights in 1999, he has a contractual right to
an annual base salary of not less than $175,000.
5
<PAGE>
ANNUAL CASH BONUS COMPENSATION. For the year ended December 31,
1998, the Compensation Committee awarded cash bonuses to all executive officers,
except the Chief Executive Officer and Chief Operating Officer, and to other
employees in recognition of achieving certain predetermined financial and
operational objectives. The Compensation Committee, in its discretion, may award
other cash bonuses to executive officers in future years.
During 1998, Ms. Engel, Vice President of Sales and Marketing, Dr.
Reardan, Vice President of Regulatory Affairs, and other employees were awarded
cash bonuses under two different one-time incentive arrangements. Ms. Engel
participated in a 1998 sales incentive program that provided a bonus potential
of up to $74,250 for achieving predetermined sales goals. Ms. Engel earned
approximates $69,000 under this program with respect to 1998 sales. Dr. Reardan
participated in a product development incentive program that provided a bonus
potential of $70,000 for the submission of a new drug application ("NDA") for
two of the Company's principal products. Dr. Reardan earned approximately
$35,000 under this program with respect to the Company's NDA submission in 1998
for Busulfex(TM) (busulfan) Injection and could earn $35,000 in a subsequent
period if the Company successfully submits an NDA for Xyrem(TM) (sodium oxybate)
oral solution.
For 1999, Ms. Engel and Dr. Reardan have been given specified bonus
targets, which could result in cash bonus compensation equal to approximately
30% of base salary. The Company believes it has established 1999 cash bonus
incentive arrangements for Ms. Engel and Dr. Reardan that are consistent with
its compensation philosophy.
A cash bonus incentive arrangement for Dr. Houghton, Chief Operating
Officer, and Mr. Bullion has not been established for 1999. The Compensation
Committee intends to set goals for Dr. Houghton and Mr. Bullion based in part
upon the achievement of Company wide financial objectives and in part upon
individualized performance criteria, which are consistent with the Company's
compensation philosophy.
LONG TERM INCENTIVE PROGRAM. Stock options are granted to key
management employees under the Company's 1994 Stock Option Plan. The purpose of
the Stock Plan is to aid in maintaining and developing personnel capable of
assuring the future success of the Company, to offer such personnel additional
incentives to put forth maximum efforts for the success of the business, and to
afford them an opportunity to acquire a proprietary interest in the Company
through stock options. The Stock Plan authorizes the Compensation Committee to
grant stock options to executives and other key employees. All stock options
outstanding were granted at an option price equal to the fair market value of
the Company's Common Stock on the date of grant and generally vest and become
exercisable in installments over a four-year period. Options granted under the
Stock Plan are issued to participants with terms of up to 10 years for incentive
stock options or up to 15 years for nonqualified stock options.
Stock options are granted upon commencement of employment after
considering the recommendation of the Chief Executive Officer. In determining
whether to recommend additional option grants to an executive officer and other
employees, the Chief Executive Officer and the Compensation Committee typically
consider the individual's performance and any planned change in functional
responsibility. The stock option position of executive officers and other
employees are reviewed on an annual basis. The Company's policy is to not grant
stock options annually, but to review each individual's stock option position,
at which point the Compensation Committee may or may not grant additional
options in its discretion. The determination of whether or not additional
options will be granted is based on a number of factors, including Company
performance, individual performance and levels of options granted by other
comparable companies.
During 1998, Dr. Reardan, Vice President of Regulatory Affairs, and
other employees participated in a one-time stock option incentive arrangement
related to specific performance objectives in 1998. Dr. Reardan was granted in
December 1997 an option to acquire 15,000 shares of the Company's
6
<PAGE>
Common Stock under this arrangement, which became exercisable during 1998 when
the Company submitted its NDA for Busulfex(TM) (busulfan) Injection.
For 1999, Ms. Engel and other employees have been given specified
stock option targets, which will result in additional options being granted and
provide for the acceleration of vesting such options for achieving certain
predetermined financial objectives. The Company believes it has established 1999
stock option incentive arrangements for Ms. Engel and other employees that are
consistent with its compensation philosophy.
Additional stock option awards for Dr. Houghton and Mr. Bullion have
not been determined for 1999. On commencing employment with the Company in
August 1998, Dr. Houghton was granted an option to purchase 100,000 shares of
Common Stock at $7.8125, which will vest ratably and become exercisable over
next 4 years. Mr. Bullion has options to purchase 350,000 shares of Common Stock
at $5.00 per share, which are fully vested and exercisable. Additional stock
option awards, if any, to Dr. Houghton or Mr. Bullion will be determined in a
manner consistent with the Company's compensation philosophy.
SAVINGS AND INVESTMENT PLAN AND OTHER BENEFITS. The Company
maintains a 401(k) Savings Plan (the "Savings Plan"), which is funded by
elective salary deferrals by employees. The Savings Plan covers executive
officers and substantially all employees meeting minimum eligibility
requirements. The Savings Plan does not require mandatory contributions by the
Company, but discretionary contributions may be made at the election of the
Company. Through December 31, 1998, the Company had not made any discretionary
contributions to the Savings Plan. In addition, the Company provides medical and
other miscellaneous benefits to executive officers that are generally available
to Company employees. The amount of perquisites did not exceed 10% of total
annual salary and bonus for any executive officer for the fiscal year ended
December 31, 1998.
CHIEF EXECUTIVE OFFICER COMPENSATION
BASE SALARY AND ANNUAL BONUS COMPENSATION. Mr. Bullion's annual base
salary and bonus compensation are set by the Compensation Committee of the Board
using the same policies and criteria used for other executive officers. For the
year ended December 31, 1998, the Compensation Committee did not award Mr.
Bullion a bonus. However, the Compensation Committee approved the payment of
previously earned base salary amounts that Mr. Bullion had voluntarily deferred
during 1997 and 1998 amounting to approximately $16,000, which has been
classified as bonus on the Summary Compensation Table. In evaluating the
performance and setting the base salary and annual bonus compensation of Mr.
Bullion, the Compensation Committee has taken into account his performance in
positioning the Company for future profitability.
STOCK OPTION AWARDS. Mr. Bullion has options to purchase up to
350,000 shares of Common Stock at $5.00 per share under the Stock Plan. One
option is for 200,000 shares of Common Stock, all of which have vested as of
December 31, 1998. The second option is for 150,000 shares of Common Stock, all
of which have vested as of December 31, 1998.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended,
should not affect the deductibility of compensation paid to the Company's
executive officers for the foreseeable future. However, the Stock Plan complies
with Section 162(m) in order that compensation resulting from stock options
under the Stock Plan will not be counted toward the $1,000,000 limit on
deductible compensation under Section 162(m). The Committee has not formulated
any policy with respect to qualifying other types of compensation for
deductibility under Section 162(m).
Michael Greene
Lawrence C. Weaver, Ph.D., D.Sc. (Hon.)
William M. Wardell, M.D., Ph.D.
Members of the Compensation Committee
7
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation
for the three (3) fiscal years ended December 31, 1998 earned by the Chief
Executive Officer and all other executive officers of the Company.
<TABLE>
<CAPTION>
Long-Term
Compensation
Compensation Awards
------------------- ------------
Securities
Base Underlying
Name and Principal Position Period Ended Salary Bonus Options (2)
- ------------------------------------ ------------ -------- -------- ------------
<S> <C> <C> <C> <C>
John Howell Bullion 12/31/98 $118,333 $ 16,000 --
Chairman of the Board, Chief 12/31/97 136,250 24,000 --
Executive Officer and Secretary 12/31/96 136,250 35,000 --
William Houghton, M.D. (1) 12/31/98 71,212 -- 100,000
Chief Operating Officer 12/31/97 -- -- --
12/31/96 -- -- --
Dayton T. Reardan, Ph.D. 12/31/98 124,087 35,000 --
Vice President of 12/31/97 111,986 3,500 38,000
Regulatory Affairs 12/31/96 107,673 3,750 --
Patti A. Engel 12/31/98 111,344 68,943 --
Vice President of Sales and 12/31/97 111,300 3,500 23,000
Marketing 12/31/96 106,599 3,750 --
</TABLE>
(1) Dr. Houghton was hired as the Company's Chief Operating Officer in August
1998.
(2) Dr. Houghton's option for 100,000 shares are subject to and conditional on
the Company's shareholders ratifying an amendment to increase the number of
shares reserved for issuance under the 1994 Stock Option Plan.
EMPLOYMENT AGREEMENTS
An employment agreement between the Company and John Howell Bullion,
which initially expired on June 30, 1997, has been extended by the Compensation
Committee of the Board through December 31, 1999. Mr. Bullion's employment
agreement for 1999 provides for an annual base salary of $175,000. In addition,
Mr. Bullion's employment agreement provides that if he is terminated by the
Company for any reason other than by the parties' mutual agreement, his death,
his total disability or his breach of any term of the employment agreement, then
he will receive up to one year's salary, a bonus equal to the minimum bonus
which would be payable for the fiscal year in which he was terminated and
certain other benefits specified in the employment agreement. None of the
Company's other executive officers have employment agreements.
8
<PAGE>
STOCK OPTIONS
OPTION GRANTS DURING TWELVE MONTHS ENDED DECEMBER 31, 1998
The following table contains information concerning grants of stock
options to certain executive officers named in the Summary Compensation Table
above during 1998.
1998 OPTION GRANTS
<TABLE>
<CAPTION>
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Individual Grants Appreciation for Option Term (2)
------------------------------------------------------- -------------------------------------
% of Total
Options Granted
Number of to Employees Exercise or
Options Year Ended Base Price Expiration
Name Granted 12/31/98 ($/Share) Date 5% 10%
- ----------------------------------------- -------- ----------- ---------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
William Houghton, M.D. (1) 100,000 71.17% $7.8125 9/28/08 $491,324 $1,245,111
</TABLE>
(1) On September 29, 1998, an option to purchase 100,000 shares, which has
a 10-year term, was granted to Dr. Houghton. Such option vested and became
exercisable with respect to 20% of such shares on February 24, 1999 and
will vest and become exercisable with respect to an additional 20% of the
shares on each of September 29, 1999, 2000, 2001 and 2002. However, Dr.
Houghton's stock option for 100,000 shares is subject to and conditional
on the Company's shareholders ratifying an amendment to increase the
number of shares reserved for issuance under the 1994 Stock Option Plan.
(2) Potential realizable value is based on an assumption that the market
price for the Company's Common Stock appreciates at the stated rate,
compounded annually, from the date of grant until the expiration date of
the option. These values are calculated based on regulations promulgated
by the Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price appreciation. There is no assurance that
the actual stock price over the term of the option will be at the assumed
5% or 10% levels, or at any other defined level.
AGGREGATED OPTION EXERCISES FOR THE YEAR ENDED DECEMBER 31, 1998 AND VALUE
OF OPTIONS HELD AT DECEMBER 31, 1998
The following tables summarizes stock option exercises in 1997 by
the executive officers named in the Summary Compensation Table above, and the
value of options held by such persons at December 31, 1997.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options Held at Held at
Shares December 31, 1998 December 31, 1998
Acquired on Value (Exercisable/ (Exercisable/
Name Exercise Realized Unexercisable) Unexercisable) (1)
- --------------------------- -------- -------- -------------- ------------------
<S> <C> <C> <C> <C>
John Howell Bullion -0- -0- 350,000/-0- $962,500/$-0-
William Houghton, M.D. -0- -0- 20,000/80,000 $-0-/$-0-
Dayton T. Reardan, Ph.D. -0- -0- 61,200/13,800 $152,325/$22,425
Patti A. Engel -0- -0- 46,200/13,800 $116,700/$22,425
</TABLE>
(1) "Value" is based upon the difference between the per share option exercise
price and the market value of the Common Stock at the date of exercise or the
December 31, 1998 last sale price of $7.75.
9
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the quarterly dollar change in the
cumulative total shareholder return on the Company's Common Stock with the
cumulative total return on the NASDAQ Total Return Index (U.S. Companies) and
the NASDAQ Pharmaceutical Stock Index for the period beginning on December 31,
1994 and ending on December 31, 1998. The graph and table assume the investment
of $100 on December 31, 1994, in the Company's Common Stock, the NASDAQ Total
Return Index and the NASDAQ Pharmaceutical Stock Index.
[PLOT POINTS CHART]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NASDAQ
NASDAQ Stock Market Pharmaceutical
Quarterly Period Orphan Medical, Inc. Total Return Index Total Return Index
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
December 1994 100.00 100.00 100.00
March 1995 83.78 109.02 107.96
June 1995 110.81 124.70 125.56
September 1995 159.46 139.71 156.88
December 1995 140.54 141.42 182.95
March 1996 181.08 148.02 190.38
June 1996 194.59 160.11 184.99
September 1996 237.84 165.81 189.16
December 1996 210.81 173.96 183.15
March 1997 118.92 164.60 174.24
June 1997 129.73 194.77 188.09
September 1997 156.76 227.72 211.01
December 1997 104.06 213.56 189.59
March 1998 235.14 249.44 208.92
June 1998 228.39 256.67 193.63
September 1998 166.23 232.36 183.23
December 1998 167.57 299.68 243.28
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table on the following page sets forth, as of March 30, 1999,
certain information with respect to the beneficial ownership of the Company's
Common Stock by (i) each person who, to the knowledge of the Company, owned
beneficially more than five percent of such stock, (ii) each director, (iii)
each executive officer named in the "Summary Compensation Table" above, and (iv)
all directors and executive officers as a group. Unless otherwise noted, the
shares listed in the table below are subject to sole voting and investment power
of the indicated person.
Beneficial ownership is determined and presented in the table on the
following page in accordance with rules of the Securities and Exchange
Commission, and includes general voting power and/or investment power with
respect to the securities. Shares of the Company's Common Stock subject to
options currently exercisable or exercisable within 60 days of March 30, 1999,
are deemed to be
10
<PAGE>
outstanding for purposes of computing the percentage of the person holding such
options, but are not deemed outstanding for computing the percentage of any
other person.
<TABLE>
<CAPTION>
Name Number Percentage
- ---------------------------------------------------------------- ----------- ----------
<S> <C> <C>
John Howell Bullion (1) 432,312 6.25%
William Houghton M.D. (2) 20,000 *
Dayton T. Reardan, Ph.D. (3) 67,910 1.03%
Patti A. Engel (4) 51,200 *
Lawrence C. Weaver, Ph.D., D.Sc. (Hon.) (5) 50,340 *
W. Leigh Thompson, Ph.D., M.D. (6) 25,000 *
William M. Wardell, M.D., Ph.D. (7) 26,000 *
Michael Greene (8) 5,000 *
Julius A. Vida, Ph.D. (9) 5,000 *
Paul T. Lambert (10) 325,000 4.95%
UBS Capital II LLC (11) 917,411 12.26%
All directors and executive officers as a group (9 persons) (12) 976,338 9.57%
</TABLE>
* Less than 1 percent.
(1) Includes 350,000 shares issuable upon the exercise of options that are
currently exercisable or will become exercisable at a price of $5.00 per share.
(2) Includes 20,000 shares issuable upon the exercise of options that are
currently exercisable or will become exercisable at a price of $7.8125 per
share.
(3) Includes 37,000, 15,000 and 9,200 shares issuable upon the exercise of
options that are currently exercisable or will become exercisable at a price of
$5.00, $5.375 and $6.125 per share, respectively.
(4) Includes 37,000 and 9,200 shares issuable upon the exercise of options that
are currently exercisable or will become exercisable at a price of $5.00 and
$6.125 per share, respectively.
(5) Includes 35,000 shares issuable upon the exercise of options that are
currently exercisable or will become exercisable at a price of $5.00 per share.
(6) Includes 20,000 and 5,000 shares issuable upon the exercise of options that
are currently exercisable or will become exercisable at a price of $7.63 and
$6.125 per share, respectively.
(7) Includes 20,000 and 6,000 shares issuable upon the exercise of options that
are currently exercisable or will become exercisable at a price of $7.63 and
$6.125 per share, respectively.
(8) Includes 5,000 shares issuable upon the exercise of options that are
currently exercisable or will become exercisable at a price of $7.8125 per
share.
(9) Includes 5,000 shares issuable upon the exercise of options that are
currently exercisable or will become exercisable at a price of $6.625 per share.
(10) Paul T. Lambert has sole voting and investment power with respect to
325,000 shares of the Company's Common Stock. The number of shares owned by Mr.
Lambert is based on a Schedule 13D filed by Mr. Lambert on February 26, 1998.
(11) UBS Capital II LLC has sole voting power with respect to 7,798 shares of
Senior Convertible Preferred Stock, which is convertible into 917,411 shares of
Common Stock. UBS Capital II LLC has voting rights with respect to the Common
Stock on an "as converted" basis.
(12) Includes 573,400 shares that may be acquired within 60 days of March 30,
1999 through the exercise of options by all executive officers and directors as
a group.
11
<PAGE>
CERTAIN TRANSACTIONS
John Howell Bullion, Chief Executive Officer and a director of the
Company, is also a director of Chronimed. Lawrence C. Weaver, Ph.D., a director
of the Company, is also a director of Chronimed. Maurice R. Taylor, II, who was
a director of the Company until his resignation in December 1998, is also Chief
Executive Officer and a director of Chronimed. William B. Adams, who was
Chairman of the Board of Directors of the Company until his resignation in
December 1998, was Chairman of the Board of Directors of Chronimed from 1985 to
June 1994.
SECTION 16(a) REPORTING
Under federal securities laws, the Company's directors and officers,
and any beneficial owner of more than 10% of a class of equity securities of the
Company, are required to report their ownership of the Company's equity
securities and any changes in such ownership to the Securities and Exchange
Commission (the "Commission"). Specific due dates for these reports have been
established by the Commission, and the Company is required to disclose in this
Proxy Statement any delinquent filing of such reports and any failure to file
such reports during 1998. Due to an administrative oversight, each of William
Houghton, an executive officer, and Julius A. Vida, a director of the Company,
had filed late one Form 3 report relating to their initial statement of
beneficial ownership of the Company's Common Stock. To the Company's knowledge,
based solely on review of the copies of such reports furnished to the Company
and written representations that no other reports were required during 1998, all
other Section 16(a) filing requirements applicable to executive officers,
directors and greater than ten-percent beneficial owners were satisfied.
PROPOSAL 2: RATIFICATION OF AMENDMENT TO 1994 STOCK OPTION PLAN
The Company believes that stock options are an important element of
compensation in attracting and retaining executives, other key employees and
outside directors, and in motivating and retaining skilled management personnel
and outside directors. The 1994 Stock Option Plan (the "Stock Plan") adopted by
the Board of Directors of the Company (the "Board") in August 1994 provided for
the issuance of 1,250,000 shares of the Company's Common Stock. The Stock Plan
was ratified by the Company's shareholders on October 5, 1995. The Stock Plan
was amended by the Board on December 13, 1996, and ratified by the Company's
shareholders on May 8, 1997, to increase the number of shares authorized for
issuance thereunder from 1,250,000 to 1,550,000 shares. As of March 30, 1999,
options to purchase 1,678,534 shares of the Company's Common Stock have been
granted, net of cancellations and forfeitures, under the Stock Plan. However,
options to acquire 128,354 shares of the Company's Common Stock, which were
granted in excess of the 1,550,000 reserved for issuance under the Stock Plan,
are subject to and conditional on the Company's shareholders ratifying an
amendment to increase the number of shares reserved for issuance under the Stock
Plan.
The Stock Plan was amended by the Board on March 3, 1999, to
increase the number of shares authorized for issuance thereunder from 1,550,000
to 1,925,000 shares. The amendment of March 3, 1999, is expressly subject to the
ratification by shareholders at the 1999 Annual Meeting. If shareholders do not
ratify the amendment at the 1999 Annual Meeting, any options granted under the
Stock Plan in excess of 1,550,000 shares would become null and void. However,
should shareholders fail to ratify the amendment to the Stock Plan, the Company
would likely be severely constrained in its ability to attract and retain
executives, other key employees and outside directors, and in motivating and
retaining skilled management personnel and outside directors necessary for the
Company's success.
SUMMARY OF THE STOCK PLAN
The Stock Plan provides for the grant of options to purchase shares
of Common Stock to any full or part-time employee of or any consultant to the
Company. Options granted under the Stock Plan to full or part-time employees may
qualify as incentive stock options under the Code or may be non-incentive stock
options. Options granted to persons who are not full or part-time employees of
the Company may not qualify as incentive stock options under the Code. The Stock
Plan is administered by the Compensation Committee, which is comprised of
non-employee directors selected by the Board. The Compensation Committee has the
authority: (i) to determine the purchase price of the Common Stock
12
<PAGE>
covered by each option, (ii) to determine the employees to whom and the time or
times at which such options shall be granted and the number of shares to be
subject to each option, (iii) to determine the terms and provisions of each
option agreement under the Stock Plan, including the designation of those
options intended to be incentive stock options, (iv) to determine the terms and
conditions for the vesting and exercise of each option, (v) to accelerate the
time at which all or any part of an option may be exercised, (vi) to amend or
modify the terms of any option with the consent of the optionee, (vii) to
interpret the Stock Plan, (viii) to prescribe, amend and rescind rules and
regulations relating to the Stock Plan, and (ix) to make all other
determinations necessary or advisable for the administration of the Stock Plan,
subject to the exclusive authority of the Board of Directors to amend or
terminate the Stock Plan. The Stock Plan provides that no employee may be
granted options for more than 400,000 shares of Common Stock in the aggregate in
any calendar year. Determinations and interpretations with respect to the Stock
Plan are in the sole discretion of the Compensation Committee, whose
determinations and interpretations will be final and conclusive. The Stock Plan
terminates on August 24, 2004, and no options may be granted after such date.
The exercise price of an incentive option granted under the Stock
Plan may not be less than the fair market value of the Common Stock on the date
the option is granted (in the event that a proposed optionee owns more than 10%
of the Company's Common Stock, any incentive stock option granted to such
optionee must have an exercise price not less than 110% of the then fair market
value). The exercise price of any non-incentive stock option granted under the
Stock Plan is determined by the Compensation Committee, but may not be less than
the fair market value of the underlying Common Stock on the date of grant. The
term of each incentive stock option is determined by the Compensation Committee,
but may not exceed 10 years from the date of grant (or, in the case of an
incentive option granted to an owner of more than 10% of the Common Stock, five
years). The term of any non-incentive stock option may not exceed 15 years. A
person who has been granted an option under the Stock Plan may be granted
additional options, but to the extent the aggregate fair market value
(determined at the time the option is granted) of the Common Stock with respect
to which incentive stock options are exercisable for the first time by such
person during any calendar year exceeds $100,000, such options will be treated
as options that do not qualify as incentive stock options.
All stock options granted under the Stock Plan provide for an
acceleration of vesting of such options in the event of a "change of control". A
change of control is defined as any of the following: (i) a public announcement
that any person has acquired or has the right to acquire beneficial ownership of
51% or more of the then outstanding shares of the Common Stock of the Company
and, for this purpose, the terms "person" and "beneficial ownership" shall have
the meanings provided in Section 13(d) of the Securities Exchange Act of 1934 or
related rules promulgated by the Securities and Exchange Commission; (ii) the
commencement of or public announcement of an intention to make a tender or
exchange offer for 51% or more of the then outstanding Common Stock of the
Company; (iii) a sale of substantially all of the assets of the Company; or (iv)
the Board of Directors of the Company, in its sole and absolute discretion,
determines that there has been a sufficient change in the stock ownership of the
Company to constitute a change of control of the Company. In the event of a
change of control, all options grant under the plan and outstanding at the time
of the change of control become immediately exercisable, regardless of the
vesting requirements of such options pursuant the terms of the individual
participant's stock option agreement.
The Board may suspend or terminate the Stock Plan or any portion
thereof at anytime. The Board may also amend the Stock Plan at any time, but
such action may not, without the consent of the affected participants, adversely
affect the rights or obligations of the participants under outstanding stock
options. The Board may increase the number of shares of Common Stock that will
be available for issuance under the Stock Plan, subject to shareholder approval.
No amendment or modification of the Stock Plan, without approval of the
shareholders of the Company, will be effective if shareholder approval of the
amendment is then required pursuant to Rule 16b(3) under the Exchange Act or any
successor rule, Section 422 of the Code, or the rules of the National
Association of Securities Dealers, Inc. Options
13
<PAGE>
outstanding at the time the Stock Plan is terminated will continue to be
exercisable in accordance with their respective terms.
FEDERAL INCOME TAX CONSEQUENCES
This discussion sets forth only general federal tax principles
affecting options which may be granted under the Stock Plan. Special rules may
apply to option holders who are subject to Section 16 of the Securities Exchange
Act of 1934, as amended.
Under current federal income tax law, there are no federal income
tax consequences to the Company or the option holder upon the granting of an
option.
An option holder who exercises an incentive stock option will not
recognize income at the time of exercise for purposes of the regular income tax
(although such option holder will realize income at such time for purposes of
the alternative minimum tax in an amount equal to the amount by which the fair
market value of the Common Stock received by the option holder exceeds the
option price paid), and the Company will not be entitled to a tax deduction at
such time. If the option holder holds shares of Common Stock received upon
exercise of an incentive stock option for at least one year after exercise and
two years from the date the incentive stock option was granted, then upon the
sale of such shares, the option holder will recognize long-term capital gain and
no tax deduction will be allowed to the Company. If the option holder sells or
otherwise disposes of shares of Common Stock received upon exercise of an
incentive stock option before such holding period is satisfied, then (a) the
option holder will recognize ordinary income at the time of the disposition in
an amount equal to the lesser of (i) the difference between the option price and
the fair market value of the shares at the time the option was exercised, and
(ii) the difference between the option price and the amount realized upon the
disposition of the shares, (b) such option holder will recognize short-term or
long-term capital gain, depending upon whether the holding period for such
shares is less or more than one year, to the extent of any excess of the amount
realized upon the disposition of the shares over the fair market value of the
shares at the time of exercise of the option, and (c) subject to the general
rules concerning deductibility of compensation, the Company will be allowed a
tax deduction in the amount that, and for its taxable year in which, the option
holder recognizes ordinary income.
Upon the exercise of an option which does not qualify as an
incentive stock option, the option holder generally will recognize ordinary
income equal to the difference between the exercise price and the fair market
value of the shares on the date of exercise. Subject to the general rules
concerning deductibility of compensation, the Company will be allowed a tax
deduction in the amount that, and for its taxable year in which, the option
holder recognizes ordinary income upon the exercise of a non-incentive stock
option.
The Stock Plan provides that, with the approval of the
administrators of the Option Plan, an option holder may exercise an option by
tendering shares of Common Stock owned by the option holder in lieu of cash, in
which case generally no gain or loss will be recognized by the option holder
with respect to the tendered shares if the option holder has held the tendered
shares for the required holding period, if any. In the case of an incentive
stock option, no income will be recognized by the option holder upon the receipt
of additional shares of Common Stock as a result of such an exercise. In the
case of a non-incentive stock option, the option holder will recognize ordinary
income as a result of such an exercise in an amount equal to the fair market
value of that number of shares equal to the excess of the number of shares
received upon exercise of the option over the number of shares tendered by the
option holder.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Voting Stock
represented at the Annual Meeting is required for the ratification of the
amendment to the Stock Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
PROPOSAL TO AMEND THE STOCK PLAN.
PROPOSAL 3: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
14
<PAGE>
The Board of Directors has appointed Ernst & Young LLP as
independent public accountants for the Company for the fiscal year ending
December 31, 1999. A proposal to ratify the appointment of Ernst & Young LLP
will be presented at the Annual Meeting. Ernst & Young LLP has audited the
Company's financial statements for the fiscal year ended December 31, 1998, and
for all prior years. Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting, will have an opportunity to make a statement if
they desire to do so and will be available to answer appropriate questions from
shareholders. If the appointment of Ernst & Young LLP is not ratified by the
shareholders, the Board of Directors is not obligated to appoint other
independent public accountants, but the Board of Directors will give
consideration to such unfavorable vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
SOLICITATION OF PROXIES
All of the expenses involved in preparing, assembling and mailing
this Proxy Statement and the material enclosed herewith will be paid by the
Company. The Company may reimburse banks, brokerage firms, and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy materials to beneficial owners of the Company's Common Stock. Although
proxies are being solicited primarily by mail, officers and regular employees of
the Company who will receive no extra compensation for their services, may
solicit such proxies by telephone, telegraph, facsimile transmission or in
person.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal by a shareholder to be presented at the 2000 Annual
Meeting must be received at the Company's executive offices, 13911 Ridgedale
Drive, Suite 475, Minnetonka, Minnesota 55305 not later than December 12, 1999.
In addition, the form of Proxy issued with next year's Proxy Statement will
confer discretionary authority to vote for or against any proposal made by a
shareholder at the 2000 Annual Meeting of Shareholders and which is not included
in next year's Proxy Statement. However, under the rules of the Securities and
Exchange Commission, such discretionary authority may not be exercised if the
shareholder proponent has given the Secretary of the Company notice of such
proposal prior to February 25, 2000, and certain other conditions provided for
in the Commission's rules have been satisfied.
15
<PAGE>
ORPHAN MEDICAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Annual Meeting of
Shareholders and Proxy Statement dated April 9, 1999, revoking all prior
proxies, hereby appoints John Howell Bullion with full power to vote all shares
the undersigned is entitled to vote at the Annual Meeting of Shareholders of
Orphan Medical, Inc. (the "Company") to be held on May 26, 1999, and at all
adjournments thereof, as specified below on each matter referred to, and, in
their discretion, upon any other matters which may be brought before the
meeting.
1. PROPOSAL TO ELECT SIX DIRECTORS
[ ] For all nominees listed below (Except as marked to the contrary
below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below:
John Howell Bullion, Michael Greene, Julius A. Vida, Ph.D.
Lawrence C. Weaver, Ph.D., D.Sc. (Hon.),
William M. Wardell, M.D., Ph.D., W. Leigh Thompson, Ph.D., M.D.
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
2. PROPOSAL TO RATIFY AMENDMENT TO 1994 STOCK OPTION PLAN.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
4. IN THEIR DISCRETION , THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(continued and to be dated and signed on the other side)
(continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR NAMED IN ITEM 1, FOR ITEM 2, FOR
ITEM 3 AND IN THE DISCRETION OF THE NAMED PROXIES ON ALL OTHER MATTERS.
Please sign exactly as name appears below. When shares are held by joint
tenants, both must sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
_______________________________________
Signature
_______________________________________
Signature if held jointly
Dated: ________________________________
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
