COULTER PHARMACEUTICALS INC, DEF 14A, 1998-04-17

COULTER PHARMACEUTICALS INC
DEF 14A, 1998-04-17
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1
21 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 Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

Coulter Pharmaceutical, 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:

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2. Aggregate number of securities to which transaction applies:

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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):

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4. Proposed maximum aggregate value of transaction:

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5. Total fee paid:

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[ ] 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:

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2. Form, Schedule or Registration Statement No.:

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3. Filing Party:

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4. Date Filed:

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<PAGE> 2

COULTER PHARMACEUTICAL, INC.
550 CALIFORNIA AVENUE
PALO ALTO, CALIFORNIA 94306

------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1998

TO THE STOCKHOLDERS OF COULTER PHARMACEUTICAL, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Coulter
Pharmaceutical, Inc., a Delaware corporation (the "Company"), will be held on
Friday, May 22, 1998 at 10:00 a.m. local time at the Garden Court Hotel, 520
Cowper Street, Palo Alto, California 94301 for the following purpose:

1. To elect directors to serve until the next Annual Meeting of
Stockholders and until their successors are elected.

2. To approve the Company's 1996 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 1,400,000 shares.

3. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1998.

4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.

The Board of Directors has fixed the close of business on April 9, 1998, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.

By Order of the Board of Directors

James C. Kitch
Secretary

Palo Alto, California
April 17, 1998

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3

COULTER PHARMACEUTICAL, INC.
550 CALIFORNIA AVENUE
PALO ALTO, CALIFORNIA 94306
------------------------

PROXY STATEMENT
------------------------

FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1998

INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed proxy is solicited on behalf of the Board of Directors of
Coulter Pharmaceutical, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on May 22, 1998, at 10:00 a.m.
local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Garden Court Hotel, 520
Cowper Street, Palo Alto, California 94301. The Company intends to mail this
proxy statement and accompanying proxy card on or about April 17, 1998, to all
stockholders entitled to vote at the Annual Meeting.

SOLICITATION

The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.

VOTING RIGHTS AND OUTSTANDING SHARES

Only holders of record of Common Stock at the close of business on April 9,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 9, 1998 the Company had outstanding and entitled to
vote 13,630,528 shares of Common Stock.

Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.

All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.

REVOCABILITY OF PROXIES

Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 550
California Avenue, Palo Alto, California 94306, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
<PAGE> 4

STOCKHOLDER PROPOSALS

Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than December 31, 1998 in order to be included in the proxy statement
and proxy relating to that Annual Meeting.

PROPOSAL 1

ELECTION OF DIRECTORS

There are eight (8) nominees for the eight (8) Board positions presently
authorized in the Company's By-laws. Each director to be elected will hold
office until the next annual meeting of stockholders and until his/her successor
is elected and has qualified, or until such director's earlier death,
resignation or removal. Each nominee listed below is currently a director of the
Company.

Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the eight (8) nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.

Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.

THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE

NOMINEES

The names of the nominees and certain information about them are set forth
below:

<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
<S> <C> <C>
Michael F. Bigham...................... 40 President, Chief Executive Officer and
Director
Arnold Oronsky, Ph.D. ................. 57 Chairman of the Board
Brian G. Atwood........................ 45 Director
Joseph R. Coulter, III................. 38 Director
Donald L. Lucas........................ 68 Director
Robert Momsen.......................... 51 Director
George J. Sella, Jr.................... 69 Director
Sue Van................................ 51 Director
</TABLE>

Michael F. Bigham has served as President, Chief Executive Officer and a
director of the Company since July 1996. During June 1996, Mr. Bigham provided
consulting services to the Company. Mr. Bigham served as Executive Vice
President of Operations from April 1994 to June 1996 and Chief Financial Officer
from April 1989 to June 1996 at Gilead Sciences, Inc., a biotechnology company.
While at Gilead, he also served as Vice President of Corporate Development from
July 1988 to March 1992. Mr. Bigham was Co-head of Healthcare Investment Banking
for Hambrecht & Quist LLC, an investment banking firm where he was employed from
1984 to 1988. Mr. Bigham is a member of the Board of Directors of Datron
Systems, Inc., a publicly-held electronics company, LJL BioSystems, Inc., a
publicly-held scientific instrumentation company and two privately-held
companies.

Arnold Oronsky, Ph.D. has served as Chairman of the Board of Directors of
the Company since its inception in February 1995. From February 1995 to July
1996, Dr. Oronsky also served as President and Chief Executive Officer of the
Company. Since March 1994, Dr. Oronsky has been a general partner at InterWest
Partners, a private venture capital firm. From February 1997 to December 1997,
Dr. Oronsky served as

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<PAGE> 5

President and Chief Executive Officer at Coulter Cellular Therapies, a private
biotechnology company, and is currently Chairman of the Board. Since December
1996, Dr. Oronsky has been Chief Executive Officer and a member of the board at
Dynavax, a private biotechnology company. From 1984 to 1994, Dr. Oronsky served
as Vice President for Discovery Research at Lederle Laboratories, a
pharmaceutical division of American Cyanamid, Inc. Dr. Oronsky has won numerous
grants and awards and has published over 125 scientific articles. Since 1988,
Dr. Oronsky has served as a senior lecturer in the Department of Medicine at
John Hopkins Medical School. Dr. Oronsky is a member of the Board of Directors
of Corixa Corp., a publicly held biotechnology company.

Brian Atwood has served as a director of the Company since April 1996. From
March to December 1995, Mr. Atwood was a consultant on business development to
the Company. Since October 1997, Mr. Atwood has been a General Partner of
Brentwood Venture Capital, a private venture capital firm, and since November
1995 he served as a Venture Partner at the firm. He was a founder and served as
President and Chief Executive Officer from December 1993 to May 1995 and Vice
President, Operations from July 1988 to November 1993 of Glycomed Incorporated,
a company dedicated to the discovery and development of novel drugs based on
complex carbohydrates. From January 1986 to June 1987, Mr. Atwood was a Director
at Perkin-Elmer/Cetus Instrument Systems, a joint venture formed by Perkin-Elmer
Corp. and Cetus Corporation, where he oversaw the development and launch of
three biotechnology instrument research systems. Mr. Atwood curently serves as
Chairman of one privately held company.

Joseph R. Coulter, III has served as a director of the Company since
December 1996. Mr. Coulter was employed by Coulter Corporation until December
1997. Coulter Corporation was acquired by Beckman Instruments in October 1997.
During his 18 years at Coulter Corporation, Mr. Coulter was most recently a
director of Coulter Corporation, Executive Vice President, Director of
Information Systems, and Program Manager for Research and Development. Mr.
Coulter also serves as an officer of a privately held resort in the Florida
Keys.

Donald L. Lucas has served as a director of the Company since April 1996.
Since 1967, Mr. Lucas has been actively engaged in venture capital activities as
a private individual. Mr. Lucas currently serves as a director of Cadence Design
Systems, Inc., Macromedia, Inc., Oracle Corporation, Transcend Services, Inc.
and Tricord Systems, Inc.

Robert Momsen has served as a director of the Company since its inception
in February 1995. Since August 1982, Mr. Momsen has been a General Partner at
InterWest Partners, a private venture capital firm. From 1977 to 1981, Mr.
Momsen served as General Manager and Chief Financial Officer of Life Instruments
Corporation, a medical diagnostic imaging company that he co-founded. Mr. Momsen
currently serves as a director of ArthroCare Corp., COR Therapeutics, Inc.,
Innovasive Devices, Inc., Integ, Inc., Urologix, Inc. and ProGenitor, Inc. Mr.
Momsen also serves as a director of five private companies.

George J. Sella, Jr. has served as a director of the Company since December
1996. From January 1983 to his retirement in April 1993, Mr. Sella served as
Chief Executive Officer of American Cyanamid Company, a chemical, agricultural
and medical products company. From September 1979 to January 1991, Mr. Sella
served as President of American Cyanamid. From May 1984 to April 1993, he served
as Chairman of the Board of Directors of American Cyanamid. Mr. Sella currently
serves as a director of Union Camp Corporation, Bush Boake Allen, Inc. and
Equitable Companies, Inc.

Sue Van has served as a director of the Company since its inception in
February 1995. Since December 1997, she has been Trustee of the Wallace H.
Coulter Trust. Ms. Van was employed by Coulter Corporation until December 1997.
During her 22 years at Coulter Corporation, she was most recently a director,
Executive Vice President, Chief Financial Officer and Treasurer. Coulter
Corporation was acquired by Beckman Instruments in October 1997. Ms. Van also
serves as a director of one private company.

BOARD COMMITTEES AND MEETINGS

During the fiscal year ended December 31, 1997 the Board of Directors held
five meetings. The Board has an Audit Committee and a Compensation Committee.

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<PAGE> 6

The Audit Committee was formed in October 1996 to review the internal
accounting procedures of the Company and consult with and review the services
provided by the Company's independent auditors. The Audit Committee is composed
of three non-employee directors: Brian Atwood, Donald Lucas and Sue Van. It met
once during such fiscal year.

The Compensation Committee was formed in October 1996 to establish
salaries, incentives and other forms of compensation paid to officers and
employees of the Company. The Compensation Committee also administers the
issuance of stock options and other awards under the Company's stock plans. The
Compensation Committee is composed of four non-employee directors: Arnold
Oronsky, Donald Lucas, Robert Momsen and Sue Van. It met twice during such
fiscal year.

During the fiscal year ended December 31, 1997, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the committees
on which he/she served, held during the period for which he/she was a director
or committee member, respectively.

MANAGEMENT

EXECUTIVE OFFICERS

The names of the executive officers of the Company and certain information
about them are set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael F. Bigham......................... 40 President and Chief Executive Officer
William G. Harris......................... 39 Vice President and Chief Financial Officer
Dan Shochat, Ph.D. ....................... 57 Vice President, Research and Development
</TABLE>

William G. Harris has served as Vice President and Chief Financial Officer
of the Company since July 1996. From July 1992 to July 1996, Mr. Harris served
as Director of Finance at Gilead Sciences, Inc., a biotechnology company. While
at Gilead, Mr. Harris also served as Controller and Manager of Administration
from July 1991 to July 1992, and as Assistant Controller and Manager of
Administration from October 1990 to July 1992. From July 1988 to October 1990,
he was a Staff Accountant at Ernst & Young LLP. Mr. Harris received a B.A.
degree in Economics from the University of California, San Diego, and an M.B.A.
from the University of Santa Clara Leavey School of Business and Administration.

Dan Shochat, Ph.D. has served as Vice President, Research and Development
of the Company since March 1995. From July 1988 to April 1995, Dr. Shochat
served as Director of Biotechnology Development at Lederle Laboratories, a
pharmaceutical division of American Cyanamid, Inc., where he was responsible for
the worldwide program in monoclonal antibodies for the treatment of cancer. He
received B.S. and M.S. degrees from Hebrew University in Israel and a Ph.D. in
Biochemistry from L.S.U. Medical School in New Orleans. Dr. Shochat is the
author of 25 scientific papers on tumor antigens and on antibodies for
diagnostic and therapeutic use in cancer.

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<PAGE> 7

PROPOSAL 2

APPROVAL OF THE 1996 EQUITY INCENTIVE PLAN, AS AMENDED

In December 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1996 Equity Incentive Plan (the "1996
Plan"). In February 1997, the Board approved an amendment to the 1996 Plan,
subject to stockholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees. The
amendment increased the number of shares authorized for issuance under the 1996
Plan by 1,400,000 shares, from a total of 1,400,000 shares to a total of
2,800,000 shares. The Board adopted this amendment to ensure that the Company,
as it grows, can continue to grant stock options to employees at levels
determined appropriate by the Board and the Compensation Committee.

At December 31, 1997 options (net of canceled or expired options) covering
an aggregate of 997,600 shares of the Company's Common Stock had been granted
under the 1996 Plan, and 402,400 shares (plus any shares that might in the
future be returned to the Plan as a result of cancellations or expiration of
options) remained available for future grant under the 1996 Plan. Options to
purchase an additional 65,500 shares and 60,000 shares were granted under the
1996 Plan in February 1998 and March 1998, respectively. During the last fiscal
year, under the 1996 Plan, the Company granted to all current executive officers
as a group options to purchase 157,500 shares at exercise prices ranging from
$8.625 to $15.75 per share, to all employees (excluding executive officers) as a
group options to purchase 715,400 shares at exercise prices ranging from $8.50
to $19.125 per share and to all current directors who are not officers as a
group options to purchase 80,000 shares at an exercise price of $8.625. For
further information regarding stock option grants, see "Executive
Compensation -- Stock Option Grants and Exercises."

Stockholders are requested in this Proposal 2 to approve the 1996 Plan, as
amended. If the stockholders fail to approve this Proposal 2, there will only be
approximately 276,900 shares available for future grant under the 1996 Plan
(before accounting for canceled or expired options). The affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
and entitled to vote at the meeting will be required to approve the 1996 Plan,
as amended. Abstentions will be counted toward the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.

THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2

The essential features of the 1996 Plan, as amended, are outlined below:

GENERAL

The 1996 Plan provides for the granting to employees (including officers
and employee directors) of incentive stock options within the meaning of Section
422 of the Internal Revenue Code, as amended (the "Code"), and for the granting
of nonstatutory stock options, restricted stock purchase awards, and stock
bonuses (collectively, "Stock Awards") to employees, directors of and
consultants to the Company. To date, only stock options have been awarded under
the 1996 Plan.

PURPOSE

The 1996 Plan was adopted to provide a means by which selected directors,
officers and employees of and consultants to the Company and its affiliates
could be given an opportunity to purchase stock in the Company, to assist in
retaining the services of employees holding key positions, to secure and retain
the services of persons capable of filling such positions and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.

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<PAGE> 8

ADMINISTRATION

The Company's Board of Directors has delegated administration of the 1996
Plan to the Compensation Committee (the "Committee"). The Committee membership
is intended to satisfy the provisions of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, and Code section 162(m), in each
case to the extent applicable. The Committee has the authority, subject to the
terms of the 1996 Plan, to determine the recipients and types of awards to be
granted, the terms of the awards granted, including the exercise price, number
of shares subject to the award, the exercisability thereof, and the form of
consideration payable upon exercise.

ELIGIBILITY

Incentive stock options may be granted under the 1996 Plan only to selected
employees (including officers and directors who are salaried employees) of the
Company and its affiliates. Selected employees (including officers), directors
and consultants are eligible to receive stock awards (other than incentive stock
options) under the 1996 Plan.

No incentive stock option may be granted under the 1996 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company, unless the incentive stock option exercise price is at least 110%
of the fair market value of the stock subject to the incentive stock option on
the date of grant, and the term of the option does not exceed five years from
the date of grant. The aggregate fair market value, determined at the time of
grant, of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000. No optionee shall be eligible for option grants under the 1996 Plan
covering more than 280,000 shares of Common Stock in any calendar year at such
time as Section 162(m) of the Code becomes applicable to the Plan.

STOCK SUBJECT TO THE 1996 PLAN

As amended, 2,800,000 shares of the Company's Common Stock are authorized
for issuance under the 1996 Plan. If options granted under the 1996 Plan expire
or otherwise terminate without being exercised, the Common Stock not purchased
pursuant to such options again becomes available for issuance under the 1996
Plan.

TERMS OF OPTIONS

The following is a description of the permissible terms of options under
the 1996 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.

Exercise Price; Payment. The exercise price of incentive stock options
under the 1996 Plan generally may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair market
value. The exercise price of nonstatutory options under the 1996 Plan generally
may not be less than 85% of the fair value of the Common Stock on the date of
option grant. The exception to these general rules is when the option relates to
the assumption or substitution of another option as permitted under Section 424
of the Code.

In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the 1996 Plan is deemed to be canceled and a new option granted.
Both the option deemed to be canceled and the new option deemed to be granted
will be counted against the 280,000 share limitation. To date, the Company has
not repriced any outstanding options, and does not currently have any intention
of doing so.

The exercise price of options granted under the 1996 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the

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Company, (ii) pursuant to a deferred payment arrangement, or (c) in any other
form of legal consideration acceptable to the Board.

Option Exercise. Options granted under the 1996 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the 1996 Plan typically vest at the rate of
1/4 of the option total on the first anniversary of the option grant with
subsequent vesting at a rate of 1/48 per month thereafter until fully vested
during the optionee's employment or services as a consultant. Shares covered by
options granted in the future under the 1996 Plan may be subject to different
vesting terms. The Board has the power to accelerate the time during which an
option may be exercised. In addition, options granted under the 1996 Plan may
permit exercise prior to vesting, but in such event the optionee may be required
to enter into an early exercise stock purchase agreement that allows the Company
to repurchase shares not yet vested at their exercise price should the optionee
leave the employ of the Company before vesting. To the extent provided by the
terms of an option, an optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such option by a cash payment
upon exercise, by authorizing the Company to withhold a portion of the stock
otherwise issuable to the optionee, by delivering already-owned stock of the
Company or by a combination of these means.

Term. The maximum term of options under the 1996 Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1996 Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless such termination is due to such person's
permanent and total disability (as defined in the Code), in which case the
option may, but need not, provide that it may be exercised at any time within
twelve months of such termination or for up to eighteen months if such
termination is due to death. Individual options by their terms may provide for
exercise within a longer period of time following termination of employment or
the consulting relationship. The option term may also be extended in the event
that exercise of the option within these periods is prohibited for specified
reasons.

TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK

Purchase Price; Payment. The Board will determine the purchase price under
each restricted stock purchase agreement. The purchase price of stock subject to
a restricted stock purchase agreement must be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment or other arrangement with the person to whom the Common Stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board in its discretion. Eligible participants may be awarded stock pursuant to
a stock bonus agreement in consideration of past services actually rendered to
the Company or for its benefit.

Repurchase. Shares of Common Stock sold or awarded under the 1996 Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule determined by the Board. In the event a
person ceases to be an employee of or ceases to serve as a director of or
consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that have not vested as of the date of termination under the
terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.

ADJUSTMENT PROVISIONS

If there is any change in the stock subject to the 1996 Plan or subject to
any option granted under the 1996 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1996 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to any person during a calendar year, and the class, number
of shares and price per share of stock subject to such outstanding options.

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<PAGE> 10

EFFECT OF CERTAIN CORPORATE EVENTS

The 1996 Plan provides that, in the event of a dissolution or liquidation
of the Company, specified type of merger or other corporate reorganization, to
the extent permitted by law, any surviving corporation will be required to
either assume options outstanding under the 1996 Plan or substitute similar
options for those outstanding under such plan, or such outstanding options will
continue in full force and effect. If any surviving corporation declines to
assume or continue options outstanding under the 1996 Plan, or to substitute
similar options, then the time during which such options may be exercised will
be accelerated and the options terminated if not exercised during such time. The
acceleration of the exercisability of an option due to an acquisition or similar
corporate event may be viewed as an antitakeover provision. This may have the
effect of discouraging a proposal to acquire or otherwise obtain control of the
Company.

DURATION, AMENDMENT AND TERMINATION

The Board may suspend or terminate the 1996 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1996 Plan will terminate on December 4, 2006.

The Board may also amend the 1996 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the 1996 Plan to satisfy Section 422 of the Code, if applicable; Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); or any Nasdaq or other securities exchange listing
requirements; (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the 1996 Plan for stockholder approval, including,
but not limited to, amendments intended to satisfy the requirements of Section
162(m) of the Code regarding the exclusion of performance-based compensation
from the limitation on the deductibility of compensation paid to certain
employees.

RESTRICTIONS ON TRANSFER

Under the 1996 Plan, an option may not be transferred by the optionee
otherwise than by will or by the laws of descent and distribution and during the
lifetime of the optionee, may be exercised only by the optionee except on such
terms as may be provided in the option agreement. In any case, an optionee may
designate in writing a third party who may exercise the option in the event of
the optionee's death. Rights under a stock bonus or restricted stock purchase
agreement are transferable only by will, by the laws of descent and distribution
or pursuant to a domestic relations order. Shares subject to repurchase by the
Company under an early exercise stock purchase agreement may be subject to
additional restrictions on transfer which the Board deems appropriate.

FEDERAL INCOME TAX INFORMATION

The following is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the 1996 Plan, does not purport to be complete and does not
discuss the income tax laws of any state or foreign country in which an optionee
may reside.

Incentive Stock Options. Incentive stock options under the 1996 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.

There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.

If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are
8
<PAGE> 11

transferred to the optionee upon exercise of the option, any gain or loss on a
disposition of such stock will be capital gain or loss (the character of which
will be determined by the length of time the stock was held). Generally, if the
optionee disposes of the stock before the expiration of either of these holding
periods (a "disqualifying disposition"), at the time of disposition, the
optionee will realize taxable ordinary income equal to the lesser of (a) the
excess of the stock's fair market value on the date of exercise over the
exercise price, or (b) the optionee's actual gain, if any, on the purchase and
sale. The optionee's additional gain, or any loss, upon the disqualifying
disposition will be a capital gain or loss. Long-term capital gains currently
are generally subject to lower tax rates than ordinary income. The maximum
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate is effectively 39.6% at the present time. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.

To the extent the optionee recognized ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.

Nonstatutory Stock Options. Nonstatutory stock options granted under the
1996 Plan generally have the following federal income tax consequences:

There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognized taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. The character of such capital
gain or loss will be determined by the length of time the stock was held.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.

Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses that
may be granted under the 1996 Plan have the following federal income tax
consequences at this time:

Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such capital gain or loss will be long-term, mid-term or short-term
depending on the length of time the stock was held from the date ordinary income
was measured. Slightly different rules may apply to persons who acquire stock
subject to forfeiture under Section 16(b) of the Exchange Act.

Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock awards,
9
<PAGE> 12

when combined with all other types of compensation received by a covered
employee from the Company, may cause this limitation to be exceeded in any
particular year.

Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation.
Treasury regulations issued under Section 162(m) of the Code, provide that
compensation attributable to stock options will qualify as performance-based
compensation, if: (i) the stock award plan contains a per-employee limitation on
the number of shares for which stock options may be granted during a specified
period; (ii) the per-employee limitation is approved by the stockholders; (iii)
the stock option is granted by a compensation committee comprised solely of
"outside directors"; and (iv) the exercise price of the stock option is no less
than the fair market value of the stock on the date of grant. Restricted stock
and stock bonuses qualify as performance-based compensation under these Treasury
regulations only if: (i) the award is granted by a compensation committee
comprised solely of "outside directors"; (ii) the award is granted (or
exercisable) only upon the achievement of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain; (iii) the compensation committee certifies in writing
prior to the granting (or exercisability) of the award that the performance goal
has been satisfied; and (iv) prior to the granting (or exercisability) of the
award, stockholders have approved the material terms of the award (including the
class of employees eligible for such award, the business criteria on which the
performance goal is based, and the maximum amount (or formula used to calculate
the amount) payable upon attainment of the performance goal). Stock Awards
granted under the 1996 Plan, as amended, are intended to qualify as
performance-based compensation pursuant to Section 162(m). See "Eligibility"
above.

PROPOSAL 3

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Board of Directors has approved Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception in 1995.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.

Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.

The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP.

THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3

10
<PAGE> 13

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 27, 1998 for (i) each
stockholder who is known by the Company to own beneficially more than five
percent of the Company's Common Stock; (ii) each Named Executive Officer; (iii)
each director of the Company and (iv) all executive officers and directors of
the Company as a group. Except as otherwise provided below, the address of each
person listed is c/o the Company, 550 California Avenue, Suite 200, Palo Alto,
California 94306.

<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
--------------------------
NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER SHARES TOTAL
---------------- --------- -------------
<S> <C> <C>
Entities Affiliated with InterWest Partners(2).............. 1,811,144 13.3%
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Robert Momsen(2)............................................ 1,811,144 13.3
Arnold Oronsky, Ph.D.(2).................................... 1,799,825 13.2
Sue Van(3).................................................. 1,375,084 10.1
Joseph R. Coulter, III(4)................................... 1,285,184 9.4
Coulter Family Limited Partnership.......................... 951,334 7.0
c/o Coulter Corporation
11800 SW 147th Avenue
Miami, FL 33196
Michael F. Bigham(5)........................................ 436,378 3.2
Brian G. Atwood(6).......................................... 436,321 3.2
Dan Shochat, Ph.D.(7)....................................... 57,424 *
Donald L. Lucas(8).......................................... 51,485 *
William G. Harris(9)........................................ 28,184 *
George J. Sella, Jr.(10).................................... 5,000 *
All executive officers and directors as a group (10
persons)(11).............................................. 4,534,870 33.3
</TABLE>

- ---------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of the Company's Common Stock.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
Company believes, based on information furnished by such persons, that the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 13,625,028 shares of Common
Stock outstanding as of February 27, 1998.

(2) Includes 1,799,825 shares held by InterWest Partners V, L.P. and 11,319
shares held by InterWest Investors V. Mr. Momsen and Dr. Oronsky, directors
of the Company, are general partners of InterWest Management Partners V,
L.P. which is the general partner of InterWest Partners V, L.P. Mr. Momsen
is a general partner of InterWest Investors V. Mr. Momsen and Dr. Oronsky
disclaim beneficial ownership of the shares held by InterWest Partners V,
L.P. and InterWest Investors V except to the extent of their respective
pecuniary interest therein.

(3) Includes 951,334 shares held by the Coulter Family Limited partnership,
389,166 shares held by the Wallace H. Coulter Charitable Remainder Unitrust
and 14,871 shares held by the Sue Van Revocable Trust. Ms. Van, a director
of the Company, is trustee of the Wallace H. Coulter Charitable Remainder
Unitrust, which is a co-general partner of the Coulter Family Limited
Partnership. Ms. Van disclaims beneficial ownership of the shares held in
the Wallace H. Coulter Charitable Remainder Unitrust and the Coulter Family
Limited Partnership except to the extent of her pecuniary interest therein.

11
<PAGE> 14

(4) Includes 326,166 shares held by the Joseph R. Coulter, Jr. Trust and
951,334 shares held by the Coulter Family Limited Partnership. Mr. Coulter,
a director of the Company, is co-trustee of the Joseph R. Coulter, Jr.
Trust, which is a co-general partner of the Coulter Family Limited
Partnership. Also includes 3,842 shares held by Mr. Coulter's wife, Susan
Sekman Coulter. Mr. Coulter disclaims beneficial ownership of the shares
held by the Joseph R. Coulter Jr. Trust, the Coulter Family Limited
Partnership and Susan Sekman Coulter, except to the extent of his pecuniary
interest therein.

(5) Includes 375,000 shares that were issued pursuant to a restricted stock
purchase agreement. 233,333 of such shares are subject to repurchase by the
Company. Also includes 35,353 shares held by a charitable trust formed by
Michael F. Bigham and 25,000 shares held by an irrevocable trust formed for
members of Mr. Bigham's family. Mr. Bigham disclaims beneficial ownership
of the shares held in each such trust except to the extent of his pecuniary
interest therein.

(6) Includes 425,981 shares held by Brentwood Associates VII, L.P. Mr. Atwood,
a director of the Company, is a venture partner of Brentwood VII Ventures,
L.P., which is the general partner of Brentwood Associates VII, L.P. Mr.
Atwood disclaims beneficial ownership of the shares held by Brentwood
Associates VII, L.P., except to the extent of his pecuniary interest
therein.

(7) Includes 34,548 shares of Common Stock subject to options exercisable
within 60 days of February 27, 1998.

(8) All 51,485 shares were held by the Donald L. Lucas & Lygia S. Lucas Trust.
Donald L. Lucas, a director of the Company, is trustee of the Donald L.
Lucas & Lygia S. Lucas Trust. Mr. Lucas disclaims beneficial ownership of
the shares, except to the extent of his pecuniary interest therein.

(9) Includes 27,256 shares of Common Stock subject to options exercisable
within 60 days of February 27, 1998.

(10) All 5,000 shares of Common Stock are subject to options exercisable within
60 days of February 27, 1998.

(11) Includes 4,534,870 shares held by directors and executive officers of the
Company, and entities and persons affiliated therewith. Also includes
66,804 shares of Common Stock subject to options exercisable within 60 days
of February 27, 1998. See Notes (2) through (10) above.

COMPENSATION OF DIRECTORS

Directors currently do not receive any cash compensation from the Company
for their services as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings. In July 1997, Mr. Momsen, Mr. Atwood and Mr. Lucas were each
granted options to purchase 20,000 shares of the Company's Common Stock and Mr.
Coulter and Ms. Van were each granted options to purchase 10,000 shares of the
Company's Common Stock, all of which were issued under the 1996 Equity Incentive
Plan.

12
<PAGE> 15

COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table. The following table sets forth the compensation
earned by the Company's Chief Executive Officer and the other executive officer
who earned in excess of $100,000 during the fiscal year ended December 31, 1997
(collectively, the "Named Executive Officers") and the compensation of the Named
Executive Officers for the fiscal year ended December 31, 1996 and the period
from inception (February 16, 1995) to December 31, 1995:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION OTHER ANNUAL SECURITIES
---------------------- COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) ($)(1) OPTIONS(#)
--------------------------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael F. Bigham(2)................ 1997 320,000 100,000 240,869(2) 100,000
President and Chief Executive 1996 150,000 50,000 57,000(2) 0
Officer 1995 -- -- -- --
Dan Shochat, Ph.D................... 1997 182,754 38,000 0 30,000
Vice President, Research and 1996 160,008 8,750 0 41,666
Development 1995 138,721 26,250 0 58,333
William G. Harris(3)................ 1997 170,000 30,000 0 27,500
Vice President, and Chief 1996 57,656(3) 5,000 0 83,332
Financial Officer 1995 -- -- -- --
</TABLE>

- ---------------
(1) As permitted by rules promulgated by the SEC, no amounts are shown for
"perquisites," where such amounts for each named executive officer do not
exceed the lesser of 10% of the sum of such executive's bonus plus salary or
$50,000.

(2) Mr. Bigham joined the Company as its President and Chief Executive Officer
in July 1996. During June 1996, Mr. Bigham provided consulting services to
the Company and received $57,000 in compensation for those services. The
1997 amount represents $157,500 related to a stock bonus grant contingent
upon certain performance based conditions and $83,369 related to certain
forgiveness of a home loan.

(3) Mr. Harris joined the Company as its Vice President and Chief Financial
Officer in July 1996. On an annualized basis, his 1996 salary was $130,000.

OPTION GRANTS IN LAST FISCAL YEAR

The Company grants options to its executive officers pursuant to its 1996
Equity Incentive Plan. As of February 27, 1998, options to purchase a total of
596,580 shares were outstanding under the 1995 Equity Incentive Plan and
1,055,100 shares were outstanding under the 1996 Equity Incentive Plan. The
following table sets forth for each of the Named Executive Officers each grant
of stock options granted during the fiscal year ended December 31, 1997:

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENTAGE OF PRICE APPRECIATION
UNDERLYING TOTAL OPTIONS EXERCISE FOR OPTION TERM(4)
OPTIONS GRANTED PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) IN FISCAL 1997(2) ($/SH)(3) DATE 5%($) 10%($)
---- ------------- ----------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Bigham....... 75,000 8.6% $ 8.625 7/29/07 $406,820 $1,030,925
25,000(5) 2.9% $15.750 10/9/07 $247,629 $ 627,519
Dan Shochat, Ph.D....... 30,000 3.4% $ 8.625 7/29/07 $162,728 $ 412,370
William G. Harris....... 27,500 3.2% $ 8.625 7/29/97 $149,167 $ 378,006
</TABLE>

- ---------------
(1) Options granted in 1997 generally vest over four years, with 25% of the
option shares becoming fully vested one year from the grant date and 1/48
vesting in each successive month, with full vesting occurring on the fourth
anniversary date.

13
<PAGE> 16

(2) Based on an aggregate of 872,900 options granted to employees in 1997,
including the Named Executive Officers.

(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant, as determined by the Board
of Directors.

(4) The potential realizable value is calculated by assuming that the stock
price on the date of grant as determined by the Board of Directors
appreciates at the indicated annual rate compounded annually for the entire
term of the option (ten years) and the option is exercised and sold on the
last day of its term for the appreciated stock price. The 5% and 10% assumed
rates of appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of the future Common Stock price.

(5) Twenty-five percent of these option shares vest annually commencing June 30,
2000, with full vesting October 31, 2004.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on the exercise of stock options during
the fiscal year ended December 31, 1997 and the number and value of securities
underlying unexercised options held by the Named Executive Officers at December
31, 1997:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Bigham.............. -- -- -- 100,000 -- $ 984,375
Dan Shochat, Ph.D. ............ -- -- 27,604 80,520 $546,481 $1,317,094
William G. Harris.............. -- -- 23,089 87,743 $446,591 $1,460,573
</TABLE>

- ---------------
(1) Based on the fair market value of $20.25 per share on December 31, 1997, as
determined by the closing sales price reported on the Nasdaq National Market
minus the exercise price multiplied by the number of shares underlying the
option.

EMPLOYMENT AGREEMENTS

In March 1996, Michael F. Bigham, Chief Executive Officer and President of
the Company, purchased 400,000 shares of Common Stock at $0.45, the fair market
value of such shares, and purchased the shares by delivering a promissory note
in the amount of $180,000. The Company has a right to repurchase these shares in
the event Mr. Bigham's employment is terminated. Such repurchase right lapses
over a four year period which may be accelerated if Mr. Bigham's employment is
involuntarily terminated for a reason other than gross misconduct. If the
Company terminates Mr. Bigham's employment for any reason, other than gross
misconduct, the Company will continue to pay his salary and provide full
benefits for one year after such termination and the Company's stock repurchase
rights will continue to expire during such period. In the event of a change in
control of the Company, Mr. Bigham will receive severance equal to at least two
years salary plus a 30% bonus and full benefits for two years. In addition, all
repurchase right expirations will be accelerated in full. In July 1996, the
Company entered into an agreement with Mr. Bigham pursuant to which he repaid an
outstanding loan to the Company in the amount of $180,000 and obtained from the
Company a home loan in the amount of $280,000, which new loan is secured by a
second deed of trust on his principal residence. This loan will be forgiven
semiannually at the rate of 12.5% per semiannual period so long as Mr. Bigham
remains employed by the Company. At December 31, 1997, $210,000 remained
outstanding on such loan from the Company. If Mr. Bigham's employment is
terminated, interest shall commence and begin to accrue at the prime rate plus
two percentage points and will become due and payable within 60 days of his
termination. If Mr. Bigham's employment is terminated for other than gross
misconduct or death, the principal of such loan shall become due upon the
earlier of Mr. Bigham securing other employment or the date 60 days from the
date of his termination. In the event of a change in control of the Company, the
remaining balance on the home loan will be forgiven.

14
<PAGE> 17

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION(1)

The Compensation Committee of the Board of Directors (the "Committee")
consisted at the end of 1997 of Arnold Oronsky, Donald Lucas, Robert Momsen and
Sue Van. The Committee is responsible for recommending and administering the
Company's policies governing employee compensation and for administering the
Company's employee benefit plans, including its stock plans. The Committee
evaluates the performance of management, recommends compensation policies and
levels, and makes recommendations concerning salaries and incentive
compensation. The full Board of Directors reviews the Committee's
recommendations regarding the compensation of the executive officers of the
Company.

The Company's executive compensation program is designed to attract and
retain executives capable of leading the Company to meet its business objectives
and to motivate them to enhance long-term stockholder value. The key elements of
the program are competitive pay and equity incentives, with an emphasis on
equity incentives. Annual compensation for the Company's executive officers
consists of base salary, bonuses and stock option grants.

The Committee makes compensation determinations based upon a subjective
assessment of a variety of factors, both personal and corporate, in evaluating
the performance of the Company's executive officers and making compensation
decisions. These factors include, in order of importance, the progress of the
Company toward its long term objectives, the individual contributions of each
officer to the Company, and the compensation paid by selected biotechnology
companies to individuals in comparable positions. The Committee's weighing of
these factors in determining the compensation of an individual executive officer
may vary, and the Committee does not apply specific guidelines.

At this point in the Company's evolution, the measures the Committee looks
to in evaluating the Company's progress are the timing and results of the
Company's clinical trials of its initial product, success in the preclinical and
clinical development of additional products, the effectiveness with which
management identifies and secures strategic opportunities to fully exploit its
current intellectual property assets and to obtain access to additional such
assets, the ability of management to secure financing for the Company's
operations, the efficient utilization of corporate resources, and the hiring and
retention of subordinate officers and other key employees best capable of
accomplishing the foregoing.

In July 1997, the Committee met to consider the compensation of the
Company's executed officers for the next twelve month period. The Committee
considered a variety of factors, both individual and corporate, in evaluating
the performance of the Company's executive officers. The Committee reviewed an
analysis of compensation done by an independent compensation consulting group
with regard to compensation, including equity-based incentives, at a select
group of companies. In addition, the Committee reviewed the results of other
independent surveys that provided information regarding management compensation
for approximately 200 companies in the biopharmaceutical industry, categorized
by geographic area and management position. The analyses and surveys include a
broader group of companies than those companies included in the Nasdaq
Pharmaceutical Index used in the performance measurement comparison graph
included in this proxy statement. The Committee also reviewed other publicly
available information, gathered informally, pertaining to compensation of
executive officers in the biopharmaceutical industry. Generally, the Committee
targeted compensation to result in base salaries that were at the mid-range of
competitive salary levels.

As a result of the review, the committee approved an increase in Mr.
Bigham's salary of approximately 8% for the twelve-month period commencing July
1997, reflecting in part, the committee's assessment of Mr. Bigham's
contributions to the progress of the Company during his first year as President
and Chief Executive Officer, as well as competitive considerations. In
particular, the Committee took into account

- ---------------

(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended (the "1993
Act"), whether made before or after the date hereof and irrespective of any
general incorporation language in any filing.
15
<PAGE> 18

progress made in the continued development of Bexxar(TM) as well as Mr. Bigham's
achievements in recruiting individuals to serve in key positions in the Company
and in financing the Company. Similar factors accounted for the increases in the
base salaries of the other executive officers for the same period.

During 1997, the Board provided stock options to the executive officers of
the Company pursuant to the 1996 Equity Incentive Plan. The exercise price of
the option grants were equal to the fair market value of the Company's Common
Stock on the date of grant. The executive officers received stock options for a
total of 157,500 shares during 1997.

Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of not more than $1 million of compensation paid to certain
executive officers in a taxable year. Compensation above $1 million may be
deducted if it is "performanced-based compensation" within the meaning of the
Code. The Board of Directors has not yet established a policy for determining
which forms of incentive compensation awarded to executive officers shall be
designed to qualify as performanced-based compensation.

Arnold Oronsky
Donald L. Lucas
Robert Momsen
Sue Van

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the formation of the Compensation Committee in October 1996, the
Board of Directors made all determinations with respect to executive officer
compensation. Of the current and former directors who participated in
deliberations concerning executive officer compensation, either prior to the
formation of the Compensation Committee or in their capacity as a member of the
Compensation Committee, Dr. Oronsky served as acting President and Chief
Executive Officer of the Company from February 1995 to June 1996, Ms. Bobbie
Wallace served as Vice President, Operations of the Company from February 1995
to March 1997 and Mr. Bigham has served as President and Chief Executive Officer
of the Company since July 1996. Each of the Company's directors, except for Mr.
Sella, has purchased securities of the Company individually or through an
affiliated entity. See "Certain Transactions" and "Security Ownership of Certain
Beneficial Owners and Management."

16
<PAGE> 19

PERFORMANCE MEASUREMENT COMPARISON(1)

The following graph compares total stockholder returns of the Company since
its initial public offering of Common Stock on January 28, 1997 to two indices:
the Nasdaq CRSP Total Return Index for the Nasdaq Stock Market (U.S. companies)
(the "Nasdaq-US") and the Nasdaq Pharmaceutical Index (the "Nasdaq-
Pharmaceutical"). The total return for the Company's stock and for each index
assumes the reinvestment of dividends, although dividends have never been
declared on the Company's stock, and is based on the returns of the component
companies weighted according to their capitalizations as of the end of each
monthly period. The Nasdaq-US tracks the aggregate price performance of equity
securities of U.S. companies traded on the Nasdaq National Market (the "National
Market"). The Nasdaq-Pharmaceutical tracks the aggregate price performance of
equity securities of pharmaceutical companies traded on the National Market. The
Company's Common Stock is traded on the National Market and is a component of
both the Nasdaq-US and the Nasdaq-Pharmaceutical.

COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT SINCE
THE COMPANY'S INITIAL PUBLIC OFFERING ON JANUARY 28, 1997(2)

<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ U.S. NASDAQ COULTER
(FISCAL YEAR COVERED) PHARMACEUTICALS PHARMACEUTICAL
<S> <C> <C> <C>
1/28/97 100 100 100
3/31/97 90.227 90.74 76.042
6/30/97 106.764 97.956 81.25
9/30/97 124.827 109.892 111.458
12/31/97 117.063 98.735 168.75
</TABLE>

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(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act or the Exchange Act, whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.

(2) Shows the cumulative total return on investment assuming an investment of
$100 in each of the Company, the Nasdaq-US and the Nasdaq-Pharmaceutical on
January 28, 1997. The cumulative total return on the Company's stock has
been computed based on an initial price of $12.00 per share, the price at
which the Company's shares were sold in its initial public offering on
January 28, 1997.

17
<PAGE> 20

CERTAIN TRANSACTIONS

The Company had a relationship with Coulter Corporation, an affiliate at
the time. In October 1997, Coulter Corporation was acquired by Beckman
Instruments, Inc. upon which occurrence Coulter Corporation became known as
Beckman Coulter. Prior to the acquisition, all of the Company's stock owned by
Coulter Corporation was distributed to members of the Coulter family. Beckman
Coulter had supplied B-1 Antibody and certain services at its cost to support
the Company's ongoing development of the B-1 Therapy. In addition, pursuant to a
sublicense assignment agreement, the Company has agreed to reimburse Beckman
Coulter for royalties (payable upon sales of the B-1 Therapy, if any) due to a
third party for certain intellectual property rights sublicensed to the Company.
Beckman Coulter has the right to convert the initial reimbursements of
royalties, up to a maximum of $4,500,000, into Common Stock of the Company at
the fair market value thereof at the time such reimbursements are due. Joseph
Coulter, III and Sue Van, directors of the Company, were executive officers of
Coulter Corporation and Mr. Coulter was a director of and beneficial stockholder
of Coulter Corporation.

In April 1996, the Company issued 9,964,607 shares of its Series C
Preferred Stock (the "Series C Stock") and warrants to purchase 498,705 shares
of its Common Stock (after giving effect to the one-for-three reverse stock
split), at an exercise price of $9.00 per share (the "Warrants") for aggregate
consideration of $22,420,366 in cash, including: (i) 888,889 shares of Series C
Stock and Warrants to purchase 44,488 shares of Common Stock to InterWest and
certain parties related thereto, (ii) 1,122,222 shares of Series C Stock and
Warrants to purchase 56,167 shares of Common Stock to Brentwood Associates VII,
L.P. ("Brentwood") and certain parties related thereto, (iii) 948,884 shares of
Series C Stock and Warrants to purchase 47,490 shares of Common Stock to certain
entities affiliated with Donald L. Lucas, a director of the Company, (iv)
102,222 shares of Series C Stock and Warrants to purchase 5,116 shares of Common
Stock to a charitable trust formed by Michael F. Bigham, Chief Executive
Officer, President and a director of the Company, (v) 100,000 shares of Series C
Stock and Warrants to purchase 5,005 shares of Common Stock to Sue Van, a
director of the Company, (vi) 11,111 shares of Series C Stock and Warrants to
purchase 566 shares of Common Stock to Brian Atwood, a director of the Company
and (vii) 11,111 shares of Series C Stock and Warrants to purchase 1,668 shares
of Common Stock to Joseph R. Coulter, III, a director of the Company.

Each share of Preferred Stock automatically converted into one-third of a
share of Common Stock upon the completion of the Company's initial public
offering.

In August 1995 and February 1996, in connection with consulting services
provided to the Company, the Company granted Mr. Atwood, a director of the
Company, options to purchase 2,059 and 4,021 shares of Common Stock,
respectively, at an exercise price of $0.30 per share. Such options were
immediately exercisable and fully vested. Mr. Atwood received compensation of
$94,863 for such consulting services.

During June 1996, Michael F. Bigham, Chief Executive Officer and President
of the Company, provided consulting services to the Company for which he was
paid $57,000. See "Employment Agreements" for a description of certain other
transactions between Mr. Bigham and the Company.

In July 1996 and October 1996, the Company granted Mr. Harris, Vice
President and Chief Financial Officer of the Company, options to purchase 58,333
shares of Common Stock at $0.75 per share and 8,333 shares of Common Stock at
$2.25 per share, respectively. Such options vest over a four-year period. In
October, the Company also granted Mr. Harris an option to purchase 16,666 shares
of Common Stock at $2.25 per share which will begin vesting in October 2000.

In July 1997, the Company granted Mr. Bigham, Mr. Harris and Dr. Shochat,
officers of the Company, options to purchase 75,000, 27,500 and 30,000 shares of
common stock, respectively. Such options have an exercise price of $8.625 per
share and vest over a four year period.

As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except (i) for any
breach of the directors' duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith
18
<PAGE> 21

or involving intentional misconduct or a knowing violation of law, (iii)
unlawful payments of dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derives any improper personal
benefit. In addition, the Company's Bylaws provide that the Company shall
indemnify any director and may indemnify any officer, to the fullest extent
permitted by the Delaware Law, who was or is a party or is threatened to be made
a party to any action or proceeding by reason of his or her services to the
Company.

The Company has entered into indemnification agreements with each of its
directors and executive officers pursuant to which the Company has indemnified
each of them against expenses and losses incurred for claims brought against
them by reason of their being a director or executive officer of the Company. In
addition, the Company intends to purchase directors' and officers' liability
insurance. There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or executive officer.

COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A)

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities (the "10% Owners"), to file
with the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
ten percent owners are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they filed during the previous fiscal year.

To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that one
report covering three transactions was filed late by Mr. Lucas, one report
covering two transactions was filed late by Ms. Van, one report covering three
transactions was filed late by Mr. Coulter and one report covering one
transaction was filed late by Mr. Hawley (InterWest Partners).

OTHER MATTERS

The Board of Directors knows of no other matter that may come before the
Annual Meeting. If any other matters are properly presented at the Annual
Meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise to act, in accordance with their best judgment.

By Order of the Board of Directors

James C. Kitch
Secretary

April 17, 1998

A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, COULTER
PHARMACEUTICAL, INC., 550 CALIFORNIA AVENUE, PALO ALTO, CALIFORNIA 94306.

19
<PAGE> 22
COULTER PHARMACEUTICAL, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1998

The undersigned hereby appoints Michael F. Bigham and William G.
Harris, and each of them, as attorneys and proxies of the undersigned, with full
power of substitution, to vote all of the shares of stock of Coulter
Pharmaceutical, Inc. which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of Coulter Pharmaceutical, Inc. to be held at the Garden
Court Hotel, 520 Cowper Street, Palo Alto, California 94301 on Friday, May 22,
1998, at 10:00 a.m. local time, and at any and all postponements, continuations
and adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.

UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 3, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.

MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.

PROPOSAL 1: To elect eight (8) directors to hold office until the next Annual
Meeting of Stockholders and until their successors are elected.

: FOR all nominees listed below : WITHHOLD AUTHORITY to
(except as marked to the contrary vote for all nominees
below). listed below.

NOMINEES: Michael F. Bigham, Arnold L. Oronsky, Brian G. Atwood, Joseph R.
Coulter III, Donald L. Lucas, Robert Momsen, George J. Sella, Jr.,
and Sue Van

TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)' NAME(S)
BELOW

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

(Continued on other side)
<PAGE> 23
(Continued from other side)

MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.

PROPOSAL 2: To approve the Company's 1996 Equity Incentive Plan, as
amended, to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 1,400,000
shares.

: FOR : AGAINST : ABSTAIN

[ ] [ ] [ ]

MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.

PROPOSAL 3: To ratify selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending December
31, 1998.

: FOR : AGAINST : ABSTAIN

[ ] [ ] [ ]

SIGNATURE(S) DATED , 1998

Please sign exactly as your name appears hereon. If the stock is
registered in the names of two or more persons, each should sign. Executors,
administrators, trustees, guardians and attorneys-in-fact should add their
titles. If signer is a corporation, please give full corporate name and have a
duly authorized officer sign, stating title. If signer is a partnership, please
sign in partnership name by authorized person.

PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.