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
Lee Pharmaceuticals
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Lee Pharmaceuticals
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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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
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previously. Identify the previous filing by registration statement number,
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LEE PHARMACEUTICALS
1434 Santa Anita Avenue
South El Monte, California 91733
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
The Annual Meeting of the Shareholders of LEE PHARMACEUTICALS, a California
corporation, will be held at 1434 Santa Anita Avenue, South El Monte,
California, on Tuesday, March 12, 1996,11, 1997, at 1:30 p.m., for the following
purposes:
1. To elect directors for the ensuing year or as otherwise provided in the
Bylaws;
2. To approve the appointment of George Brenner, CPA, as independent auditor;
3. To consider and approve the Lee Pharmaceuticals 1997 Employee Incentive
Stock Option Plan.
4. To consider and approve the Lee Pharmaceuticals 1997 Stock Option Plan for
Outside Directors.
5. To transact such other business as may properly come before the meeting or
any adjournments thereof.
The Board of Directors has fixed January 19, 1996,24, 1997, at the close of business,
as the record date for the determination of shareholders entitled to receive
notice of, and to vote at, the meeting and any adjournments thereof.
WE URGE YOU TO VOTE ON THE BUSINESS TO COME BEFORE THE MEETING BY EXECUTING
AND RETURNING THE ENCLOSED PROXY OR BY CASTING YOUR VOTE IN PERSON AT THE
MEETING.
By order of the Board of Directors.
MICHAEL L. AGRESTI, Secretary
South El Monte, California
January 30, 19961997
LEE PHARMACEUTICALS
1434 Santa Anita Avenue
South El Monte, California 91733
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS -- MARCH 12, 199611, 1997
This statement is furnished in connection with the Annual Meeting of the
Shareholders to be held on March 12, 1996.11, 1997. Shareholders of record at the close
of business on January 19, 199624, 1997, will be entitled to vote at the meeting and
this statement was mailed to each of them on approximately January 30, 1996.1997.
VOTING SECURITIES OF THE COMPANY
Common Stock, of which 4,135,162 shares were outstanding on the record date,
constitutes the only security of the Company the holders of which are entitled
to vote at the meeting. Each share of stock is entitled to one vote except that
shareholders have cumulative voting rights with respect to the election of
directors. They may exercise such rights either in person or by
proxy. Cumulative voting entitles a shareholder to give one nominee a
number of votes equal to the number of directors to be elected, multiplied by
the number of shares owned by such shareholder, or to distribute his votes on
the same principle between two or more nominees as he sees fit. However, no
shareholder shall be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and the shareholder, or any other
shareholder, has given notice at the meeting prior to the voting of his
intention to cumulate his votes.
PROXIES
Proxies are being solicited by the Company, and the persons named as proxies
were selected by the Company. The Company will bear all costs of the
solicitation (estimated to be $7,000) and will reimburse brokers or other
persons holding stock in their names or in the names of their nominees for
reasonable expenses in forwarding proxies and proxy material to the beneficial
owners of stock. Any shareholder given a proxy has the right to revoke it at
any time.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the only persons who, as of December 31, 1995,1996,
were known to the Company to be beneficial owners of more than five percent of
the Company's Common Stock:
NAME AND ADDRESS SHARES OWNED PERCENT
OF BENEFICIAL OWNER AT DECEMBER 31, 199531,1996 OF CLASS
Dr. Henry L.Ronald G. Lee 337,468521,319 shares (1) 8%(2) 13%
1434 Santa Anita Avenue
South El Monte, CA 91733
Dimensional Fund Advisors, Inc. 229,200Dr. Henry L. Lee 292,334 shares 6%
1299 Ocean(3) 7%
1434 Santa Anita Avenue
11th Floor
Santa Monica,South El Monte, CA 90401
(1) Includes 28,000 shares of the Company's Common Stock which Dr. Lee holds as
trustee for the benefit of certain family members. He has the right to
vote such shares but otherwise disclaims beneficial ownership.91733
The following table sets forth the ownership of the Company's Common Stock by
its directors and its named executive officers and all executive officers and
directors as a group.
COMPANY SHARES
BENEFICIALLY OWNED ON PERCENT
NAME DECEMBER 31, 19951996 OF CLASS
Ronald G. Lee 521,319 (1) (2) 13%
Dr. Henry L. Lee 337,468 (1) 8%
Ronald G. Lee 138,616 (2)292,334 (3) 3%
Theo. H. Dettlaff 128,914 (2) (3) 3%7%
William M. Caldwell IV 3,866 (3)7,733 (2) *
All officers and directors
as a group (5(4 persons) 686,102869,410 (1) (2) (3) 17%21%
(1) Includes shares held under the Employee Stock Ownership Plan and Trust.
(2) Includes shares subject to options exercisable at or within 60 days after
December 31, 1996.
(3) Includes 28,000 shares of the Company's common stock which Dr. Lee holds as
trustee for the benefit of certain family members. He has the right to
vote such shares but otherwise disclaims beneficial ownership.
(2) Includes shares held under the Company's Employee Stock Ownership Plan and
Trust.
(3) Includes shares subject to options exercisable at or within 60 days after
December 31, 1995.
* Less than 1%
1
ELECTION OF DIRECTORS
At the meeting, four (4)three (3) directors are to be elected for the ensuing year
and until their successors are duly elected and qualified or as otherwise
provided in the Bylaws. The total number of authorized directors is five (5),
therefore two vacancies exist.
If the enclosed proxy is duly executed and received in time for the meeting,
the shares represented thereby will be voted, and it is the intention of the
persons named therein to vote, absent instruction to the contrary, for the three
(3) persons listed below who are currently directors of the Company and were
nominated by the Board of Directors for re-election as directors of the Company;
however, in the case of cumulative voting, the proxy holders may cumulate the
votes for one or more of the nominees. In the event any nominee for director
becomes unavailable and a vacancy exists, it is intended either (a) that the
persons named in the proxy will vote for a substitute who will be designated by
the Board of Directors, or (b) that the number of directors will be reduced
accordingly. The persons receiving the greatest number of votes, up to five
persons, will be elected.
DIRECTORS AND EXECUTIVE OFFICERS
NAME AND A DIRECTOR
POSITIONS HELD PRINCIPAL OCCUPATION OR OFFICER
WITH COMPANY AGE DURING THE PAST FIVE YEARS (1) SINCE
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DR. HENRY L. LEE 6970 Chairman of the Board of Lee Pharmaceuticals 1971
Director through April, 1995, when 1971
Director he retired, available
as a consultant, currently a Director of the
Company.
RONALD G. LEE 4344 President and since April 1995 Chairman of the 1977
President, Chairman Board of the Company. 1977
President, Chairman
and Director
THEO. H. DETTLAFF 65 President of Consumer Products Division and Director of the 1979
Vice President, Company.
President of Consumer
Products Division
and Director
MICHAEL L. AGRESTI 5354 Vice President - Finance, Treasurer and 1977
Vice President - Secretary of the Company. 1977
Vice President -
Finance, Treasurer and
Secretary
WILLIAM M. CALDWELL IV 4849 President of Union Jack Group, Inc., a merchant 1987
Director banking firm. 1987
Director
(1) None of the companies named, other than the Company, is a parent,
subsidiary or other affiliate of the Company.
All Directors attended the two meetings of the board and any committee
of the board on which such director served except Dennis F. Holt who
missed one meeting of the Board of Directors. Mr. Holt resigned as a
Director of the Company in October 1995. The Company has an audit
committee which consists of three directors: Henry L. Lee, Ronald G. Lee
and William M. Caldwell IV. There were no audit committee meetings held
during the fiscal year. The Company does not have a nominating or
compensation committee.
FAMILY RELATIONSHIPS
Ronald G. Lee is the son of Dr. Henry L. Lee.
2
EXECUTIVE COMPENSATION
The following table sets forth information with respect to remuneration paid
by the Company to the executive officers of the Company with total annual salary
and bonus of at least $100,000 for services in all capacities while acting as
officers and directors of the Company during the fiscal years ended September
30, 1996, 1995 1994 and 1993.
1994.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------- ---------------------------------------------- ------------
Name and Other Annual All Other
Principal Position Year Salary ($) Compensation ($) Options (#) Compensation ($)
- ------------------ ------- ---------- ------------------------------- ----------- ----------------
Dr. Henry L. Lee, 1995 119,190 475 (1) -- (6)
Chairman 1994 137,932 3,028 (1) 55,000 (3) 231 (6)
(thru April 25, 1995) 1993 249,544 9,174 (1) -- 22,177 (6)
Ronald G. Lee 1996 179,624 2,382(1) -- --
President, Chairman 1995 178,595 5,734 (2) 80,000 (4) (7)
President, Chairman 1994 206,244 3,884 (2) 55,000 (4) 1,909 (7)5,734(1) 80,000(2) --
(since April 26, 1995) 1993 225,852 5,464 (2) -- 24,464 (7)1994 206,244 3,884(1) 55,000(2) 1,909(4)
& Director
Theo. H. Dettlaff, Vice 1996 118,224 -- -- --
President, President 1995 167,575 51,500 (5) (8)
President, President 1994 185,791 55,000 (5) 2,728 (8)-- 51,500(3) --
of Consumer Products 1993 209,4801994 185,791 -- 25,569 (8)55,000(3) 2,728(5)
Division & Director (6)
(1) Includes reimbursement of medical and dental expenses not covered by the
Company's insurance plan of $1,294$2,382, $5,081, and $8,116,$713, respectively, in
19941996, 1995, and 1993, and non-cash fringe benefits of $475, $1,734 and
$1,058, respectively, in 1995, 1994 and 1993.
(2) Includes reimbursement of medical and dental expenses not covered by
the Company's insurance plan of $5,081, $713 and $4,383, respectively,
in 1995, 1994 and 1993 and non cash fringe benefits of $653 $3,171
and $1,081,$3,171,
respectively, in 1995 1994 and 1993.
(3) The Company granted 55,000 stock options on January 24, 1994 which
had an option price of $1.44 at the date of grant.
(4)1994.
(2) The Company granted 80,000 stock options on May 8, 1995, which had an
option price of $.50 at the date of grant and 55,000 stock options on
January 24, 1994, which had an option price of $1.31 at the date of
grant.
(5)(3) The Company granted 51,500 stock options on May 8, 1995, which had an
option price of $.50 at the date of grant and 55,000 stock options on
January 24, 1994, which had an option price of $1.31 at the date of
grant.
(6) Amount represents the fair market value of Company shares purchased
and/or forfeitures in the Company's Employee Stock Ownership Plan and
Trust. There were no shares purchased and/or forfeitures in the
Company's Employee Stock Ownership Plan and Trust in 1995.
(7)(4) Amount represents the fair market value of Company shares purchased
and/or forfeitures in the Company's Employee Stock Ownership Plan and
Trust of $0 in 1995, $349 in 1994 and $22,177 in 1993 and life insurance policy with an annual premium
of $0 in 1995, $1,560 in 1994
and $2,287 in 1993.
(8)1994.
(5) Amount represents the fair market value of Company shares purchased
and/or forfeitures in the Company's Employee Stock Ownership Plan and
Trust of $0 in 1995, $311 in 1994 and $22,177 in 1993 and life insurance policy with an annual premium
of $0 in 1995, $2,417 in 19941994.
(6) He ceased being an officer and $3,392 in 1993.
Dr. Henry Lee's participation in the Company's Employee Stock
Ownership Plan and Trust terminated when he retired. Subsequent
distributiondirector of the 66,286 shares and $9,058 cash was made after
September 30, 1995. He elected to take all cash which was $39,380 net
after mandatory (22%) withholding taxes.Company in March 1996.
Each of the directors of the Company who is not employed by the Company
receives a director's fee of $750 for each quarter and $500 for each
meeting of the Board of Directors attended.attended, except Dr. Henry L. Lee. As
holder of the honorary title of Founder Chairman Dr. Lee waived his fees.
1985 EMPLOYEE INCENTIVE STOCK OPTION PLAN
The following summary sets forth information as to certain options to
purchase shares of common stock from the Company which were granted under the
Company's 1985 Employee Incentive Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------
% of Total
Options Granted
Options to employees in Exercise of Base Expiration
Name Granted (#) Fiscal Year Price ($/Share) Date
---- ----------- ----------- --------------- ----
Ronald G. Lee 80,000 49 .50 5/7/2000
Theo. H. Dettlaff 51,500 20 .50 5/7/2000
3
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Unexercised Options
at Fiscal Year End (#)
Name Exercisable/Unexercisable
- ---- -------------------------
Ronald G. Lee 76,333/116,667
Theo. H. Dettlaff 76,333/88,16736,666/98,334
3
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The Company established an Employee Stock Ownership Plan and Trust ("Plan")
effective December 1, 1985. The Plan is a tax-qualified employee stock
ownership plan which is designed to invest primarily in the common stock of the
Employer for the benefit of the employees and their beneficiaries.
The benefits provided by the Plan are paid for entirely by the Employer. The
Employer contributions are used to purchase the common stock of the Employer,
which is credited to the individual accounts maintained for each participant.
In addition to providing an opportunity for employees to participate in the
Employer's growth through stock ownership and to provide funds for employees'
retirement, the Plan is designed to be available as a technique of corporate
finance to the Employer.
All employees who had completed at least a six-month period of service with
the Employer as of the effective date of this Plan (December 1, 1985) became
participants in the Plan as of such date. Every other employee will become a
participant in the Plan as of the first day of the month coinciding with or next
following the date upon which he completes a six-month period of service
provided that he is employed by the Employer on such date.
The Employer makes contributions only on behalf of the participants who are
employed by it on the last day of each Plan year, September 30. Contributions
made on behalf of the employees will not be taxable to them until the time
benefits are actually paid to them.
Effective October 1, 1989, the Plan consists of two (2) parts: Plan A, a
stock bonus plan, and Plan B, a money purchase pension plan. The Company's
Board of Directors determines the amount to be contributed annually to Plan A up
to a maximum of fifteen percent (15%) of participant compensation for the Plan
year (October 1 through September 30). The contribution under Plan B is a non-
discretionary amount equal to ten percent (10%) of participant compensation for
the Plan year. The contribution by the Company to the Trust for any single Plan
year cannot exceed twenty-five percent (25%) of the total compensation paid to
Plan participants for the year.
Company contributions are allocated to each Participant's Company
Contribution Account in the proportion that his compensation for the Plan year
bears to the total compensation paid to all participants for the Plan year.
Forfeitures which arise under Plan A are allocated to the accounts of the other
participants at the end of the Plan year during which the forfeitures arise due
to termination of employment in the same manner as Company contributions are
allocated. Forfeitures which arise under Plan B are used to offset the
Company's required contribution under Plan B.
The term "vested" as applied in the context of employee benefit plans refers
to that portion of a participant's accounts which has become nonforfeitable
because the participant has accrued a certain number of period-
of-serviceperiod-of-service
credits. If a participant reaches normal retirement age (age 65), becomes
permanently disabled, dies or retires at age 65, his interest in his accounts
becomes immediately 100% vested, i.e. nonforfeitable.
The Plan has been amended to conform with the requirements of the Tax Reform
Act of 1986 and effective October 1, 1989, the vesting schedule of the Plan is
as follows:
PERIOD OF SERVICE VESTED PERCENTAGE
Less than 3 years 0%
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years 100%
The following tabulation shows the interest in the Plan and vesting
percentages of the officers who are named in the Cash Compensation Table and all
executive officers as a group as of September 30, 1995.1996.
INTEREST IN THE PLAN
SHARES OF CASH VESTED
NAME COMMON STOCK AMOUNT PERCENTAGE
Henry L. Lee 66,286 $ 9,058 100%
Theo. H. Dettlaff 52,549 $ 11,504 100%
Ronald G. Lee 52,08346,427 $ 11,172163 100%
All executive officers
194,371 $ 36,872 100%
as a group (4(2 persons) 4
The Company's former Chairman's participation in the Plan terminated when
he retired. The distribution of his participation in the Plan was made after
September 30, 1995. He elected to take all cash which totaled $39,380, net
after mandatory (22%) withholding taxes.67,333 $ 238 100%
Effective July 1, 1993, the plan was amended for a second time. On June 30,
1993, Plan B was canceled; therefore, all participants became 100% vested, in
Plan B only, effective July 1, 1993. No contribution was made to Plan A or B
for the period October 1, 1993, through September 30, 1994.
Effective September 30, 1995, Plan A was canceled. All participants under
Plan A became 100% vested on September 30, 1995, due to the cancelation of Plan
A. No contribution was made to Plan A or B for the period October 1, 1994
through September 30, 1995.fiscal year 1995 or 1996. In
connection with the termination of Plan A, the Company wrote off the Employee
Stock Ownership Plan and Trust receivable as of September 30, 1995.
In November 1996 the Company received its final determination letter from the
Internal Revenue Service. During fiscal 1997 all participants account balances
will be distributed by the Company.
4
1987 STOCK OPTION PLAN
Effective December 10, 1987, the Board of Directors adopted a 1987 Stock
Option Plan for the purpose of granting to the outside directors of the Company
stock options to purchase shares of the Company's Common Stock. A maximum of
50,000 shares of Common Stock may be issued upon exercise of the options granted
under the plan. The price to be paid for shares covered by each option shall be
the fair market value at the date of the grant. The grant of non-qualified
stock options does not result in any taxable income to the participant or in any
tax deduction to the Company. Upon the exercise of a non-qualified option, the
excess of the market value of the shares acquired over their cost to the
participant is taxable to the participant as ordinary income and is deductible
by the Company, subject to the usual rules relating to the reasonableness of
compensation. The participant's tax basis for the shares is their fair market
value at the time of exercise. Income realized on the exercise of a non-
qualified stock option is subject to federal and state withholding taxes.
In the event a participant sells or exchanges stock received upon exercise of
a non-qualified option, he or she will realize long-term or short-term capital
gain or loss depending upon the holding period for the shares and the amount
realized in the transaction. Long-term capital gains and short-term capital
gains will be taxed as ordinary income.
Upon the exercise of a non-qualified option by a participant who is subject
to Section 16(b) of the Exchange Act, the appreciation, taxable as ordinary
income, is measured at the expiration of a six-month restricted holding period,
based on the fair market value of the stock at that date. With respect to the
stock received upon the exercise of non-qualified options, such persons may
instead elect to pay the tax on the stock's value at the date of exercise by
filing an election within 30 days of the date of exercise. The holding period,
for tax purposes, for any shares received commences on the expiration of the
six-month restricted period, or if elected, the date of exercise. No options
shall be exercisable until one and one-half years from the date of grant. The
options will expire five years from the date of grant.
The following summary sets forth information as to all options to purchase
shares of Common Stock from the Company which were granted to outside directors
under the Company's 1987 Stock Option Plan.
UNEXERCISED
SEPTEMBER 30, 19951996
NUMBER AVERAGE OPTION
OF SHARES PRICE PER SHARE
Dennis F. Holt 16,600 $ 1.07
Charles R. Plott 16,600 $ 1.07
William M. Caldwell IV 16,600 $ 1.07
All directors as a group (3(2 persons) 49,80016,600 $ 1.07
As of September 30, 1995, 11,5981996, 7,733 of the above options were exercisable.
APPROVAL OF 1997 EMPLOYEE INCENTIVE STOCK OPTION PLAN
On January 20, 1997, the Board of Directors adopted, subject to the
approval of the shareholders of the Company, the Lee Pharmaceuticals 1997
Employee Incentive Stock Option Plan ("Employee Stock Option Plan"), effective
January 1, 1997. Under the Employee Stock Option Plan, the Company may grant to
selected officers and key employees of the Company incentive stock options to
purchase shares of the Company's Common Stock for the purpose of attracting and
retaining officers and key employees of ability and experience and to furnish
such individuals maximum incentive to improve operations and increase the
profits of the Company.
The following summary of the main features of the Employee Stock Option
Plan is qualified in its entirety by the complete text of the Employee Stock
Option Plan which is set out as Appendix A to this Proxy Statement. The
capitalized terms used in the following summary but not defined therein shall
have the meanings contained in the Employee Stock Option Plan.
PURPOSE.
The purpose of the Employee Stock Option Plan is to provide the opportunity
to selected officers and key employees of the Company to purchase shares of the
Company's Common Stock in order to encourage such individuals to continue their
employment with the Company and to provide incentive in the form of equity
compensation for such individuals to increase the profits of the Company. The
Employee Stock Option Plan provides only for the grant of "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code 1986, as
amended.
ELIGIBILITY.
Selected officers and key employees of the Company who are responsible for
the conduct and management of its business or who are involved in endeavors
significant to its success are eligible to receive stock options under the
Employee Stock Option Plan. Approximately ten (10) employees are currently
eligible to participate in the Employee Stock Option Plan. The determination of
which eligible employees shall receive options, the number of shares subject to
such options and the dates upon which such options are granted will be
determined by the Board of Directors in its sole discretion; provided, however,
that no employee may be granted options to the extent that the aggregate fair
market value as of the date of grant of the Common Stock with respect to which
any such options are exercisable for the first time during a calendar year would
exceed $100,000.
5
OPTION PRICE AND TERM.
Only incentive stock options may be granted under the Employee Stock Option
Plan. The price per share of the shares subject to each option shall not be
less than 100% of the fair market value of such stock on the date the stock
option is granted. The fair market value of a share of Common Stock of the
Company as of January 16, 1997, is $0.14 per share. Stock options shall not be
exercisable until one and one-half years from the date of grant. Commencing
eighteen (18), thirty (30) and forty-two (42) months, respectively, after the
date of grant, an option may be exercised to the extent of one third of the
total number of shares to which it relates. Upon a change in control of the
Company, all stock options granted to any optionee will become fully
exercisable. Stock options will expire on the fifth anniversary of the date of
grant. Any stock option granted to an employee who at the time the option is
granted, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, will be granted at
a price equal to one hundred and ten percent (110%) of the fair market value
determined as of the date the stock option is granted.
TERMINATION OF EMPLOYMENT.
Upon termination of employment with the Company, other than upon death,
disability or termination for cause, options exercisable at the date of
termination may be exercised at any time within three months (3) after the date
of termination, but not later than the date of expiration of the option.
Options are to remain exercisable for a period of one year following termination
of employment on account of death or disability. In the event an optionee is
terminated for cause, all outstanding options shall terminate on the date of
such termination. Options exercisable at termination include the full number of
shares the optionee was entitled to purchase on the date of termination plus a
portion of the additional number of shares, if any, such individual would have
been entitled to purchase on the next anniversary date of the grant of the
option following such termination, such portion to be determined by multiplying
such additional number of shares by a fraction, the numerator of which is the
number of days from the anniversary date from the date of grant preceding such
termination to the date of such termination and the denominator of which is 365.
ADMINISTRATION AND AMENDMENT.
The Employee Stock Option Plan will be administered by the Board of
Directors. It may be terminated, suspended or amended as the Board deems
advisable as long as any such amendment does not revoke or alter any outstanding
stock options in any manner adverse to any employee. The Employee Stock Option
Plan will expire on the tenth (10th) anniversary of its effective date, December
31, 2006.
NON-TRANSFERABILITY.
No stock option may be transferred, assigned, pledged or hypothecated in
any way except pursuant to a will or the laws of descent and distribution.
During the employee's lifetime, a stock option may be exercised only by the
employee or his or her legal guardian or representative.
GENERAL.
A total of 980,000 shares of Lee Pharmaceuticals Common Stock are reserved
for issuance under the Employee Stock Option Plan. The Company may adjust the
number of stock options as appropriate in the event of a reorganization, stock
split, merger or other such change in capitalization.
TAX TREATMENT.
The following is a brief description of the federal income tax treatment
that will generally apply to awards made under the Employee Stock Option Plan
based on federal income tax laws in effect on the date hereof. The grant of an
incentive stock under the Employee Stock Option Plan is generally not a taxable
event for the optionee and is not a taxable event for the Company. Upon
exercise of the option, the optionee does not recognize ordinary income, but
instead will recognize income at the time a disposition of the stock occurs. If
no disposition of the shares acquired pursuant to the option is made by the
optionee within two years from the date the option is granted nor within one
year after the date the option is exercised, the spread between the price paid
for the option and the fair market value on the date of disposition is treated
as long term capital gain. If these holding period requirements are not met, a
disqualifying disposition occurs, and the optionee recognizes ordinary income to
the extent of the excess of the fair market value on the date of exercise (or
the proceeds of the disposition, if less) over the option price. The additional
gain, if any, is treated as short or long term capital gain depending on the
holding period measured from the date of exercise. At the time the incentive
stock option is exercised, the excess of the fair market value over the option
price is an adjustment to the computation of alternative minimum taxable income
and may cause the optionee to incur liability for the alternative minimum tax.
The Company will only become entitled to a deduction equal to the amount of
ordinary income recognized by the optionee in the event of a disqualifying
disposition.
GRANT OF OPTIONS.
No options will be granted under the Employee Stock Option Plan until
shareholder approval is obtained. Because the grants of options are
discretionary with the Board of Directors, the number of options that will be
received by key employees in the future is not determinable .
6
The affirmative vote of the holders of at least a majority of the votes
cast at a duly held shareholders' meeting at which a quorum representing a
majority of all outstanding voting stock of Lee Pharmaceuticals is, either in
person or by proxy, present and voting on the Employee Stock Option Plan is
required for approval of the Employee Stock Option Plan.
THE BOARD OF DIRECTORS OF THE COMPANY HAS ADOPTED THE EMPLOYEE STOCK OPTION
PLAN AND RECOMMENDS A VOTE FOR ITS APPROVAL.
APPROVAL OF 1997 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
On January 20, 1997, the Board of Directors adopted, subject to the
approval of the shareholders of the Company, the Lee Pharmaceuticals 1997 Stock
Option Plan for outside directors ("Director Stock Option Plan"), effective
January 1, 1997. Under the Director Stock Option Plan, the Company may grant to
directors of the Company who are not employees of the Company stock options to
purchase shares of the Company's Common Stock for the purpose of attracting and
retaining outside directors of ability and experience and to furnish such
individuals maximum incentive to improve operations and increase the profits of
the Company.
The following summary of the main features of the Director Stock Option
Plan is qualified in its entirety by the complete text of the Director Stock
Option Plan which is set out as Appendix B to this Proxy Statement. The
capitalized terms used in the following summary but not defined therein shall
have the meanings contained in the Director Stock Option Plan.
PURPOSE.
The purpose of the Director Stock Option Plan is to provide to directors of
the Company who are not employees of the Company the opportunity to purchase
shares of the Company's Common Stock in order to provide incentive in the form
of equity compensation for such individuals to increase the profits of the
Company.
ELIGIBILITY.
Directors of the Company who are not employees of the Company are eligible
to receive stock options under the Director Stock Option Plan. There are
currently two (2) non-employee directors. The determination of which eligible
directors shall receive options, the number of shares subject to such options
and the dates upon which such options are granted will be determined by the
Board of Directors in its sole discretion.
OPTION PRICE AND TERM.
Only nonqualified stock options may be granted under the Director Stock
Option Plan. The price per share of the shares subject to each option shall not
be less than 100% of the fair market value of such stock on the date the stock
option is granted. The fair market value of a share of Common Stock of the
Company as of January 16, 1997, is $0.14 per share. Stock options shall not be
exercisable until one and one-half years from the date of grant. Commencing
eighteen (18), thirty (30) and forty-two (42) months, respectively, after the
date of grant, an option may be exercised to the extent of one third of the
total number of shares to which it relates. Upon a change in control of the
Company, all stock options granted to any optionee will become fully
exercisable. Stock options will expire on the fifth anniversary of the date of
grant.
CESSATION OF SERVICE.
Upon cessation of service with the Company, other than upon death or
disability, options exercisable at the date of cessation may be exercised at any
time within three months (3) after the date of cessation, but not later than the
date of expiration of the option. Options are to remain exercisable for a
period of one year following cessation of service on account of death or
disability. Options exercisable at cessation include the full number of shares
the optionee was entitled to purchase on the date of cessation plus a portion of
the additional number of shares, if any, such individual would have been
entitled to purchase on the next anniversary date of the grant of the option
following such cessation, such portion to be determined by multiplying such
additional number of shares by a fraction, the numerator of which is the number
of days from the anniversary date from the date of grant preceding such
cessation to the date of such cessation and the denominator of which is 365.
ADMINISTRATION AND AMENDMENT.
The Director Stock Option Plan will be administered by the Board of
Directors. It may be terminated, suspended or amended as the Board deems
advisable as long as any such amendment does not revoke or alter any outstanding
stock options in any manner adverse to any optionee. The Director Stock Option
Plan will expire on the tenth (10th) anniversary of its effective date, December
31, 2006.
NON-TRANSFERABILITY.
No stock option may be transferred, assigned, pledged or hypothecated in
any way except pursuant to a will or the laws of descent and distribution.
During the non-employee director's lifetime, a stock option may be exercised
only by the non-employee director or his or her legal guardian or
representative.
7
GENERAL.
A total of 150,000 shares of Lee Pharmaceuticals Common Stock are reserved
for issuance under the Director Stock Option Plan. The Company may adjust the
number of stock options as appropriate in the event of a reorganization, stock
split, merger or other such change in capitalization.
TAX TREATMENT.
The following is a brief description of the federal income tax treatment
that will generally apply to awards made under the Director Stock Option Plan
based on federal income tax laws in effect on the date hereof. The grant of an
option under the Director Stock Option Plan is generally not a taxable event for
the optionee and is not a taxable event for the Company. Upon exercise of the
option, the optionee will generally recognize ordinary income in an amount equal
to the excess of the fair market value of the stock acquired upon exercise
(determined as of the date of exercise) over the exercise price of such option,
and the Company will be entitled to a deduction equal to such amount.
GRANT OF OPTIONS.
No options will be granted under the Director Stock Option Plan until
shareholder approval is obtained. Because the grants of options are
discretionary with the Board of Directors, the number of options that will be
received by non-employee directors in the future is not determinable .
The affirmative vote of the holders of at least a majority of the votes
cast at a duly held shareholders' meeting at which a quorum representing a
majority of all outstanding voting stock of Lee Pharmaceuticals is, either in
person or by proxy, present and voting on the Director Stock Option Plan is
required for approval of the Director Stock Option Plan.
THE BOARD OF DIRECTORS OF THE COMPANY HAS ADOPTED THE DIRECTOR STOCK OPTION
PLAN AND RECOMMENDS A VOTE FOR ITS APPROVAL.
RELATED-PARTY TRANSACTIONS
Dennis Holt, a Director of the Company during 1995, is an owner, president
and chief executive officer of Western International Media Corp., a company
which purchases radio and television time on behalf of advertisers. During the
fiscal year ended September 30, 1995, and 1994, the Company purchased approximately
$204,000 and $61,000, respectively, of television time from Western International Media Corp. to advertise
its products. Western International Media Corp. realized a commission of
approximately $19,000 and
$3,000 from the purchase of such time during fiscal yearsyear ended
September 30, 1995 and 1994, respectively.1995. In addition, Mr. Holt received a direct remuneration from
the Company of $2,000 and $3,000 during fiscal year 1995 and
1994, respectively, as a Director's fee. Effective
October 12, 1995, Mr. Holt resigned from the Board of Directors.
Henry L. Lee, former Chairman of the Board, has advanced funds to the
Company, from time to time, in return for notes payable. Additional funds
were advanced to the Company during fiscal year ended September 30, 1995, in
the amount of $250,000 by the Company's former Chairman. In January 1995,
the terms of the notes were amended to provide for repayment in full in
January 2005. Interest is payable monthly at a bank's prime rate, 8.75%8.25%, on
September 30, 1995.1996. At September 30, 1995,1996, the amount of loans outstanding
from the former Chairman was $1,219,000.$1,314,000. During fiscal year ending September
30, 1995,1996, the total interest expensed to related parties was $291,000 out$281,000. The
amount of which $66,000interest paid was paid$270,000 and $318,000the accrued liability was accrued$329,000
as of September 30, 1995.
5
1996, in addition to other accruals of $19,000.
The former Chairman is a majority shareholder with a freight consulting
firm. During fiscal year ending September 30, 1994, the former Chairman's
firm provided the Company with analysis of freight shipments and development
of expert system type computer programs for traffic management. The total
consulting fees approximated $113,000, of which $75,000 was paid and $38,000
was payable as of September 30, 1994. During fiscal year 1995 the companyCompany
paid the $38,000 which was payable as of September 30, 1994. There were no
consulting fees charged by the former Chairman's firm during fiscal year
ending September 30, 1995. In April 1995, the Chairman retired. He
will continuecontinues as a director of the Company.
In 1991, the Company sold and leased back two of its operating facilities in
a transaction with its former Chairman. An initial gain was recognized and a
deferred gain was recorded which is to be amortized over the term of the two
leases which expire November 2000. The amount of deferred gain recognizedrealized during
19951996 and 19941995 was $65,000.
APPOINTMENT OF INDEPENDENT AUDITOR
Shareholders will be asked to approve the appointment of George Brenner, CPA,
as independent auditor of the Company for the fiscal year 1996.1997. George Brenner,
CPA, has served as independent auditor of the Company commencing October 27,
1995. George Brenner, CPA, is expected to be present at the meeting and shall
have the opportunity to make any statements he desires to make and to respond to
appropriate questions.
The following resolution will be offered by the management at the meeting:
8
RESOLVED that the selection of George Brenner, CPA, as the independent
auditor of the Company for the fiscal year ending September 30, 19961997, is hereby
ratified and approved.
As previously reported in a Current Report on Form 8-K, on September 27,
1995, the Board of Directors of Lee Pharmaceuticals authorized, effective
September 27, 1995, (1) the termination of the engagement of Meir & Meir as
independent auditors for Lee Pharmaceuticals for the fiscal year ended September
30, 1995, and (2) the engagement of Jeffery, Corrigan & Shaw, 245 South Los
Robles Avenue, Suite 400, Pasadena, California 91101-2894, as independent
auditors for Lee Pharmaceuticals for fiscal 1995. Jeffery, Corrigan & Shaw was
engaged as the Company's principal independent auditors on September 29, 1995.
During the fiscal year ended September 30, 1994, and through September 27,
1995, there were no disagreements with Meir & Meir on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Meir &
Meir would have caused them to make reference in connection with their report to
the subject matter. The Company had been informed by Meir & Meir that
information had come to their attention that made them conclude that the scope
of the audit should be expanded to include an expert opinion regarding the
environmental issues the Company is involved with. The finding of such expert
may materially impact the fairness or reliability of the previously issued audit
reports or the underlying financial statements, or the financial statements to
be issued covering the fiscal periods subsequent to the date of the most recent
audited financial statements (including information that might preclude the
issuance of an unqualified report). The request by Meir & Meir to include the
expert opinion in the fiscal 1995 audit was not the basis for the Company's
change in independent accountants.
Prior to such firm's engagement, Jeffery, Corrigan & Shaw was not consulted
by the Company (or anyone acting on its behalf) regarding (1) either the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
Lee Pharmaceuticals' financial statements or (2) any matter that was either the
subject of a "disagreement" of a "reportable event" as such terms are defined in
Regulation S-K promulgated by the Securities and Exchange Commission.
As previously reported in a Current Report on Form 8-K, on October 27, 1995,
the Board of Directors of Lee Pharmaceuticals authorized, effective October 27,
1995, (1) the termination of the engagement of Jeffery, Corrigan & Shaw as
independent auditors for Lee Pharmaceuticals for the fiscal year ended September
30, 1995, and (2) the engagement of George Brenner, CPA, 9300 Wilshire
Boulevard, Suite 480, Beverly Hills, California 90212, as independent auditor
for Lee Pharmaceuticals for fiscal 1995. George Brenner, CPA was engaged as the
Company's principal independent auditor on October 27, 1995.
In connection with its activities for the period September 27, 1995, (the
date Jeffery, Corrigan & Shaw was engaged), through October 27, 1995, there were
no disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Jeffrey, Corrigan & Shaw would have caused them
to make reference in connection with their report to the subject matter.
Jeffrey, Corrigan & Shaw was unable to proceed with the audit engagement because
of its failure to obtain the insurance it believed was necessary.
Prior to such firm's engagement, George Brenner, CPA was not consulted by the
Company (or anyone acting on its behalf) regarding (1) either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on Lee Pharmaceuticals'
financial statements or (2) any matter that was either the subject of a
"disagreement" of a "reportable event" as such terms are defined in Regulation
S-K promulgated by the Securities and Exchange Commission.
6
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the next annual meeting
of the shareholders must be received by the Company for inclusion in its proxy
statement and form of proxy relating to such meeting on or before October 2,
1996.1997.
OTHER MATTERS
The management is not aware of any other matters to be presented to the
meeting for action by the shareholders. If any other matters should properly
come before the meeting, the persons named in the enclosed proxy form will vote
the proxies in accordance with their best judgment.
By order of the Board of Directors.
South El Monte, California MICHAEL L. AGRESTI, Secretary
January 30, 19961997
9
APPENDIX A
LEE PHARMACEUTICALS
1997 EMPLOYEE INCENTIVE STOCK OPTION PLAN
SECTION 1: PURPOSE
The purpose of the Lee Pharmaceuticals 1997 Employee Incentive Stock Option
Plan (the "Plan") is to further the growth and development of Lee
Pharmaceuticals (the "Company") by affording an opportunity for stock ownership
to selected officers and key employees of the Company who are responsible for
the conduct and management of its business or who are involved in endeavors
significant to its success.
SECTION 2: DEFINITIONS
Unless otherwise indicated, the following words when used herein shall have
the following meanings:
(a) "Affiliate" shall mean, with respect to any person or entity, a
person or entity that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, such person or entity.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Cause" shall mean a termination on account of (1) repeated
refusal to obey written directions of the Board of Directors or a superior
officer of the Company (so long as such directions do not involve illegal
or immoral acts); (2) repeated acts of substance abuse which are materially
injurious to the Company, (3) fraud or dishonesty that is materially
injurious to the Company, (4) commission of a criminal offense involving
money or other property of the Company (excluding any traffic violations or
similar violations), or (5) commission of a criminal offense that
constitutes a felony in the jurisdiction in which the offense is committed.
(d) "Change in Control" shall be deemed to have occurred (1) at such
time as a third person, including a "group" as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, becomes the beneficial owner of
shares of the Company having 15% or more of the total number of votes that
may be cast for the election of Directors of the Company, or (2) on the
date on which the shareholders of the Company approve (i) any agreement for
a merger or consolidation in which the Company will not survive as an
independent corporation or (ii) any sale, exchange or other disposition of
all or substantially all of the Company's assets, or (3) on the effective
date of any sale, exchange or other disposition of greater than 50% in fair
market value of the Company's assets. In determining whether clause (1) of
the preceding sentence has been satisfied, the third person owning shares
must be someone other than a person or an Affiliate of a person that, as of
January 1, 1997, was the beneficial owner of shares of the Company having
20% or more of the total number of votes that may be cast for the election
of Directors of the Company. The reasonable determination of the Board of
Directors as to whether such an event has occurred shall be final and
conclusive.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Common Stock" shall mean the Company's common stock without par
value and any share or shares of the Company's capital stock hereafter
issued or issuable in substitution for such shares.
(g) "Director" shall mean a member of the Board of Directors.
(h) "Option" shall mean any option granted to an eligible employee
under the Plan, which the Company intends at the time the option is granted
to be an incentive stock option within the meaning of Section 422 of the
Code.
(i) "Option Agreement" means the agreement specified in Section 7.2.
(j) "Optionee" shall mean any employee who is granted an Option under
the Plan. "Optionee" shall also mean the personal representative of an
Optionee and any other person who acquires the right to exercise an Option
by bequest or inheritance.
SECTION 3: EFFECTIVE DATE
The effective date of the Plan is January 1, 1997; provided, however, that
the adoption of the Plan by the Board of Directors is subject to approval and
ratification by the shareholders of the Company within twelve (12) months of the
effective date. Options granted under the Plan prior to approval of the Plan by
the shareholders of the Company shall be subject to approval of the Plan by the
shareholders of the Company.
10
SECTION 4: ADMINISTRATION
4.1 ADMINISTRATION. The Plan shall be administered by the Board of
Directors.
4.2 MEETINGS AND ACTIONS. The Board of Directors shall hold meetings at
such times and places as it may determine. A majority of the members of the
Board of Directors shall constitute a quorum, and the acts of the majority of
the members present at a meeting or a consent in writing signed by all members
of the Board of Directors shall be the acts of the Board of Directors and shall
be final, binding and conclusive upon all persons, including the Company, its
shareholders, and all persons having any interest in Options which may be or
have been granted pursuant to the Plan.
4.3 POWERS OF BOARD OF DIRECTORS. The Board of Directors shall have the
full and exclusive right to grant and determine terms and conditions of all
Options granted under the Plan and to prescribe, amend and rescind rules and
regulations for administration of the Plan. In granting Options, the Board of
Directors shall take into consideration the contribution the Optionee has made
or may make to the success of the Company and such other factors as the Board of
Directors shall determine.
4.4 INTERPRETATION OF PLAN. The determination of the Board of Directors
as to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, binding and conclusive upon all
persons, including the Company, its shareholders, and all persons having any
interest in Options which may be or have been granted pursuant to the Plan.
4.5 INDEMNIFICATION. Each person who is or shall have been a member of
the Board of Directors shall be indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred in connection with or resulting from any claim, action,
suit or proceeding to which such person may be a party or in which such person
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid in settlement thereof, with the
Company's approval, or paid in satisfaction of a judgment in any such action,
suit or proceeding against him, provided such person shall give the Company an
opportunity, at its own expense, to handle and defend the same before
undertaking to handle and defend it on such person's own behalf. The foregoing
right of indemnification shall not be exclusive of, and is in addition to, any
other rights of indemnification to which any person may be entitled under the
Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise,
or any power that the Company may have to indemnify them or hold them harmless.
SECTION 5: STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The aggregate number of shares of Common Stock which may be
issued under Options granted pursuant to the Plan shall not exceed 980,000
shares. Shares which may be issued under Options may consist, in whole or in
part, of authorized but unissued stock of the Company not reserved for any other
purpose.
5.2 UNUSED STOCK. If any outstanding Option under the Plan expires or for
any other reason ceases to be exercisable, in whole or in part, other than upon
exercise of the Option, the shares which were subject to such Option and as to
which the Option had not been exercised shall continue to be available under the
Plan.
5.3 ADJUSTMENT FOR CHANGE IN OUTSTANDING SHARES. If there is any change,
increase or decrease, in the outstanding shares of Common Stock which is
effected without receipt of additional consideration by the Company, by reason
of a stock dividend, recapitalization, merger, consolidation, stock split,
combination or exchange of stock, or other similar circumstances, then in each
such event, the Board of Directors shall make an appropriate adjustment in the
aggregate number of shares of stock available under the Plan, the number of
shares of stock subject to each outstanding Option and the Option prices in
order to prevent the dilution or enlargement of any Optionee's rights. In
making such adjustments, fractional shares shall be rounded to the nearest whole
share.
5.4 REORGANIZATION OR SALE OF ASSETS. If the Company is merged or
consolidated with another corporation and the Company is not the surviving
corporation, or if all or substantially all of the assets of the Company are
acquired by another entity, or if the Company is liquidated or reorganized,
(each of such events being referred to hereinafter as a "Reorganization Event"),
the Board of Directors shall, as to outstanding Options, either (1) make
appropriate provision for the protection of any such outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation, which will be
issuable in respect of the Common Stock, provided that no additional benefits
shall be conferred upon Optionees as a result of such substitution, and provided
further that the excess of the aggregate fair market value of the shares subject
to the Options immediately after such substitution over the purchase price
thereof is not more than the excess of the aggregate fair market value of the
shares subject to such Options immediately before such substitution over the
purchase price thereof, or (2) upon written notice to all Optionees, which
notice shall be given not less than 20 days prior to the effective date of the
Reorganization Event, provide that all unexercised Options must be exercised
within a specified number of days (which shall not be less than ten) of the date
of such notice or such Options will terminate. In response to a notice provided
pursuant to clause (2) of the preceding sentence, an Optionee may make an
irrevocable election to exercise the Optionee's Option contingent upon and
effective as of the effective date of the Reorganization Event. The Board of
Directors may, in its sole discretion, accelerate the exercise dates of
outstanding Options in connection with any Reorganization Event which does not
also result in a Change in Control.
11
SECTION 6: ELIGIBILITY
Selected officers and key employees of the Company who are responsible for
the conduct and management of its business or who are involved in endeavors
significant to its success shall be eligible to receive Options under the Plan.
SECTION 7: GRANT OF OPTIONS
7.1 GRANT OF OPTIONS. The Board of Directors may from time to time in its
discretion determine which of the eligible employees should receive Options, the
number of shares subject to such Options, and the dates on which such Options
are to be granted. No employee may be granted Options to the extent that the
aggregate fair market value (determined as of the time each Option is granted)
of the Common Stock with respect to which any such Options are exercisable for
the first time during a calendar year (under all incentive stock option plans of
the Company) would exceed $100,000.
7.2 OPTION AGREEMENT. Each Option granted under the Plan shall be
evidenced by a written Option Agreement setting forth the terms upon which the
Option is granted. Each Option Agreement shall state the number of shares of
Common Stock, as designated by the Board of Directors, to which that Option
pertains. More than one Option may be granted to an eligible person.
7.3 OPTION PRICE. The option price per share of Common Stock under each
Option shall be stated in the Option Agreement and shall not be less than 100%
of the fair market value (determined as of the day the Option is granted) of the
shares subject to the Option.
7.4 OPTION PERIOD AND LIMITATION ON EXERCISE. Options shall be
exercisable at such times and for such period (the "Option Period") as may be
fixed by the Board at the date of grant; provided, however, that no Option shall
be exercisable until one and one-half (1 1/2) years from the date of grant, nor
after the expiration of five years from the date of grant. Except as
specifically provided in Section 10 or Section 5.3 or by such different method
as fixed by the Board of Directors pursuant to Section 7.8, Options shall be
exercisable from time to time, in whole or in part, during the Option period as
follows: Commencing eighteen (18), thirty (30) and forty-two (42) months,
respectively, after the date of grant, an Option may be exercised to the extent
of one-third (1/3) of the total number of shares to which it relates. All or
any part of the shares with respect to which the right to purchase has accrued
in accordance with the provisions of this paragraph may be purchased at the time
of such accrual, or from time to time thereafter during the balance of the
Option period.
7.5 DETERMINATION OF FAIR MARKET VALUE. If the Common Stock is listed
upon an established stock exchange or exchanges, then the fair market value per
share shall be deemed to be the average of the quoted closing prices of the
Common Stock on such stock exchange or exchanges on the day for which the
determination is made, or if no sale of the Common Stock shall have been made on
any stock exchange on that day, on the next preceding day on which there was
such a sale. If the Common Stock is not listed upon an established stock
exchange but is traded in the NASDAQ National Market System, the fair market
value per share shall be deemed to be the closing price of the Common Stock in
the National Market System on the day for which the determination is made, or if
there shall have been no trading of the Common Stock on that day, on the next
preceding day on which there was such trading. If the Common Stock is not
listed upon an established stock exchange and is not traded in the National
Market System, the fair market value per share shall be deemed to be the mean
between the dealer "bid" and "ask" closing prices of the Common Stock on the
NASDAQ System on the day for which the determination is made, or if there shall
have been no trading of the Common Stock on that day, on the next preceding day
on which there was such trading. If none of these conditions apply, the fair
market value per share shall be deemed to be an amount as determined in good
faith by the Board of Directors by applying any reasonable valuation method.
7.6 DURATION OF OPTIONS. Each Option shall be of a duration as specified
in the Option Agreement; provided, however, that the term of each Option shall
be no more than five years from the date on which the Option is granted and
shall be subject to early termination as provided herein.
7.7 ADDITIONAL LIMITATIONS ON GRANT. No Option shall be granted to an
employee who, at the time the Option is granted, owns stock (as determined in
accordance with Section 424(d) of the Code) representing more than 10% of the
total combined voting power of all classes of stock of the Company, unless the
option price of such Option is at least 110% of the fair market value
(determined as of the day the Option is granted) of the stock subject to the
Option and the Option by its terms is not exercisable more than five years from
the date it is granted.
7.8 OTHER TERMS AND CONDITIONS. The Option Agreement may contain such
other provisions, which shall not be inconsistent with the Plan, as the Board of
Directors shall deem appropriate, including, without limitation, provisions that
relate the Optionee's ability to exercise an Option to the passage of time or
the achievement of specific goals established by the Board of Directors or the
occurrence of certain events specified by the Board of Directors.
SECTION 8: EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. Subject to the limitations and conditions of the
Plan or the Option Agreement, an Option shall be exercisable, in whole or in
part, from time to time, by giving written notice of exercise to the Secretary
of the Company, which notice shall specify the number of shares of Common Stock
to be purchased and shall be accompanied
12
by (1) payment in full to the Company of the purchase price of the shares to
be purchased, plus (2) payment in full of such amount as the Company shall
determine to be sufficient to satisfy any liability it may have for any
withholding of federal, state or local income or other taxes incurred by
reason of the exercise of the Option, and (3) a representation meeting the
requirements of Section 12.2 if requested by the Company, and (4) a Stock
Restriction Agreement meeting the requirements of Section 12.3 if requested
by the Company.
8.2 PAYMENT OF PURCHASE PRICE. Payment for shares and withholding taxes
shall be in the form of either (1) cash, (2) a certified or bank cashier's check
to the order of the Company, or (3) shares of the Common Stock, properly
endorsed to the Company, in an amount the fair market value of which on the date
of receipt by the Company (as determined in accordance with Section 7.5) equals
or exceeds the aggregate option price of the shares with respect to which the
Option is being exercised, or (4) in any combination thereof; provided, however,
that no payment may be made in shares of Common Stock unless payment in such
form and upon such exercise has been approved in advance by the Board of
Directors. Upon the exercise of any Option, the Company, in its sole
discretion, may make financing available to the Optionee for the payment of the
purchase price on such terms and conditions as the Board of Directors shall
specify.
SECTION 9: CHANGE IN CONTROL
9.1 ACCELERATION OF VESTING. Notwithstanding any vesting requirements
contained in any Option Agreement, all outstanding Options shall become
immediately exercisable in full upon the occurrence of a Change in Control.
SECTION 10: EFFECT OF TERMINATION OF EMPLOYMENT
10.1 TERMINATION OF EMPLOYMENT OTHER THAN UPON DEATH OR DISABILITY. Upon
termination of an Optionee's employment with the Company other than upon death
or disability (within the meaning of Section 22(e)(3) of the Code) and other
than for Cause, an Optionee may, at any time within three months after the date
of termination but not later than the date of expiration of the Option, exercise
the Option to the extent the Optionee was entitled to do so on the date of
termination. Any Options not exercisable as of the date of termination and any
Options or portions of Options of terminated Optionees not exercised as provided
herein shall terminate.
10.2 TERMINATION BY DEATH OF OPTIONEE. If an Optionee shall die while in
the employ of the Company or within a period of three months after the
termination of employment with the Company under circumstances to which
Section 10.1 apply, the personal representatives of the Optionee's estate or the
person or persons who shall have acquired the Option from the Optionee by
bequest or inheritance may exercise the Option at any time within the year after
the date of death but not later than the expiration date of the Option, to the
extent the Optionee was entitled to do so on the date of death. Any Options not
exercisable as of the date of death and any Options or portions of Options of
deceased Optionees not exercised as provided herein shall terminate.
10.3 TERMINATION BY DISABILITY OF OPTIONEE. Upon termination of an
Optionee's employment with the Company by reason of the Optionee's disability
(within the meaning of Section 22(e)(3) of the Code), the Optionee may exercise
the Option at any time within one year after the date of termination but not
later than the expiration date of the Option, to the extent the Optionee was
entitled to do so on the date of termination. Any Options not exercisable as of
the date of termination and any Options or portions of Options of disabled
Optionees not exercised as provided herein shall terminate.
10.4 OPTIONS EXERCISABLE AT TERMINATION. For purposes of the application
of Sections 10.1, 10.2 and 10.3, Options shall be exercisable at termination
only to the extent of the full number of shares the Optionee was entitled to
purchase under the Option on the date of such termination, plus a portion of the
additional number of shares, if any, he would have become entitled to purchase
on the next anniversary date of the date of grant of the Option following such
termination, such portion to be determined by multiplying such additional number
of shares by a fraction, the numerator of which shall be the number of days from
the anniversary date of the date of grant preceding such termination to the date
of such termination and the denominator of which shall be 365. Such portion
shall be rounded, if necessary, to the nearest whole share.
10.5 OTHER TERMINATIONS. Upon termination of an Optionee's employment with
the Company under circumstances other than those set forth in Sections 10.1,
10.2 or 10.3, including without limitation a termination for Cause, Options
granted to the Optionee shall terminate immediately.
SECTION 11: NON-TRANSFERABILITY OF OPTION
Options granted pursuant to the Plan are not transferable by the Optionee
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the
Option contrary to the provisions hereof, or upon the levy of any attachment or
similar process upon the Option, the Option shall immediately become null and
void.
13
SECTION 12: ISSUANCE OF SHARES
12.1 TRANSFER OF SHARES TO OPTIONEE. As soon as practicable after the
Optionee has given the Company written notice of exercise of an Option and has
otherwise met the requirements of Section 8.1, the Company shall issue or
transfer to the Optionee the number of shares of Common Stock as to which the
Option has been exercised and shall deliver to the Optionee a certificate or
certificates therefor, registered in the Optionee's name. In no event shall the
Company be required to transfer fractional shares to the Optionee, and in lieu
thereof, the Company may pay an amount in cash equal to the fair market value
(as determined in accordance with Section 7.5) of such fractional shares on the
date of exercise. If the issuance or transfer of shares by the Company would
for any reason, in the opinion of counsel for the Company, violate any
applicable federal or state laws or regulations, the Company may delay issuance
or transfer of such shares to the Optionee until compliance with such laws can
reasonably be obtained. In no event shall the Company be obligated to effect or
obtain any listing, registration, qualification, consent or approval under any
applicable federal or state laws or regulations or any contract or agreement to
which the Company is a party with respect to the issuance of any such shares.
12.2 INVESTMENT REPRESENTATION. Upon demand by the Company, the Optionee
shall deliver to the Company a representation in writing that the purchase of
all shares with respect to which notice of exercise of the Option has been given
by the Optionee is being made for investment only and not for resale or with a
view to distribution, and containing such other representations and provisions
with respect thereto as the Company may require. Upon such demand, delivery of
such representation promptly and prior to the transfer or delivery of any such
shares and prior to the expiration of the option period shall be a condition
precedent to the right to purchase such shares.
SECTION 13: AMENDMENTS
The Board of Directors may at any time and from time to time alter, amend,
suspend or terminate the Plan or any part thereof as it may deem proper, except
that no such action shall diminish or impair the rights under an Option
previously granted nor shall any amendment be effective unless approved by the
shareholders of the Company where such approval is necessary to satisfy the
requirements of Rule 16b-3 or any NASDAQ or securities exchange voting
requirements. Unless the shareholders of the Company shall have given their
approval, the total number of shares for which Options may be issued under the
Plan shall not be increased, except as provided in Section 5.3, and no amendment
shall be made which reduces the price at which the Common Stock may be offered
under the Plan below the minimum required by Section 7.3, except as provided in
Section 5.3, or which materially modifies the requirements as to eligibility for
participation in the Plan. Subject to the terms and conditions of the Plan, the
Board of Directors may modify, extend or renew outstanding Options granted under
the Plan, or accept the surrender of outstanding Options to the extent not
theretofore exercised and authorize the granting of new Options in substitution
therefor, except that no such action shall diminish or impair the rights under
an Option previously granted without the consent of the Optionee.
SECTION 14: TERM OF PLAN
This Plan shall terminate on December 31, 2006; provided, however, that the
Board of Directors may at any time prior thereto suspend or terminate the Plan.
SECTION 15: RIGHTS AS SHAREHOLDER
An Optionee shall have no rights as a shareholder of the Company with
respect to any shares of Common Stock covered by an Option until the date of the
issuance of the stock certificate for such shares.
SECTION 16: NO EMPLOYMENT RIGHTS
Nothing contained in this Plan or in any Option granted under the Plan
shall confer upon any Optionee any right with respect to the continuation of
such Optionee's employment by the Company or interfere in any way with the right
of the Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the Optionee from the rate in existence at the time of the
grant of the Option.
SECTION 17: GOVERNING LAW
This Plan, and all Options granted under this Plan, shall be construed and
shall take effect in accordance with the laws of the State of California.
LEE PHARMACEUTICALS
By: Ronald G. Lee
-------------------------------------
Date: January 20, 1997
-----------------------------------
14
APPENDIX B
LEE PHARMACEUTICALS
1997 STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS
SECTION 1: PURPOSE
The purpose of the Lee Pharmaceuticals 1997 Stock Option Plan for Outside
Directors (the "Plan") is to further the growth and development of Lee
Pharmaceuticals (the "Company") by providing an incentive to selected directors
of the Company, by increasing their involvement in the business and affairs of
the Company, by helping to attract and retain well qualified directors and/or by
rewarding directors for their past dedication to the Company.
SECTION 2: DEFINITIONS
Unless otherwise indicated, the following words when used herein shall have
the following meanings:
(a) "Board of Directors" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(c) "Common Stock" shall mean the Company's common stock without par
value and any share or shares of the Company's stock hereafter
issued or issuable in substitution for such shares.
(d) "Director" shall mean a member of the Board of Directors.
(e) "Option" shall mean any option granted to an eligible Director
under the Plan.
(f) "Optionee" shall mean any Director who is granted an Option under
the Plan. "Optionee" shall also mean the personal representative
of an Optionee and any other person who acquires the right to
exercise an Option by bequest or inheritance.
SECTION 3: EFFECTIVE DATE
The effective date of the Plan is January 1, 1997; provided, however, that
the adoption of the Plan by the Board of Directors is subject to approval and
ratification by the shareholders of the Company within 12 months of the
effective date. Options granted under the Plan prior to approval of the Plan by
the shareholders of the Company shall be subject to approval of the Plan by the
shareholders of the Company.
SECTION 4: ADMINISTRATION
4.1 ADMINISTRATION. The Plan shall be administered by the Board of
Directors.
4.2 MEETINGS AND ACTIONS. The Board of Directors shall hold meetings at
such times and places as it may determine. A majority of the members of the
Board of Directors shall constitute a quorum, and the acts of the majority of
the members present at a meeting or a consent in writing signed by all members
of the Board of Directors shall be the acts of the Board of Directors and shall
be final, binding and conclusive upon all persons, including the Company, its
shareholders, and all persons having any interest in Options which may be or
have been granted pursuant to the Plan.
4.3 POWERS OF BOARD OF DIRECTORS. The Board of Directors shall have the
full and exclusive right to grant and determine terms and conditions of all
Options granted under the Plan and to prescribe, amend and rescind rules and
regulations for administration of the Plan. In granting Options, the Board of
Directors shall take into consideration the contribution the Optionee has made
or may make to the success of the Company and such other factors as the Board of
Directors shall determine.
4.4 INTERPRETATION OF PLAN. The determination of the Board of Directors
as to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, binding and conclusive upon all
persons, including the Company, its shareholders, and all persons having any
interest in Options which may be or have been granted pursuant to the Plan.
4.5 INDEMNIFICATION. Each person who is or shall have been a member of
the Board of Directors shall be indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by him in connection with or resulting from any claim,
action, suit or proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him in satisfaction of a judgment in any such
action, suit or proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing
15
right of indemnification shall not be exclusive of, and is in addition to,
any other rights of indemnification to which any person may be entitled under
the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
SECTION 5: STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The aggregate number of shares of Common Stock which may be
issued under Options granted pursuant to the Plan shall not exceed 150,000
shares; provided, however, that at no time shall the aggregate number of
individuals who have been granted Options under the Plan exceed thirty-five (35)
persons. Shares which may be issued under Options may consist, in whole or in
part, of authorized but unissued stock of the Company not reserved for any other
purpose.
5.2 UNUSED STOCK. If any outstanding Option under the Plan expires or for
any other reason ceases to be exercisable, in whole or in part, other than upon
exercise of the Option, the shares which were subject to such Option and as to
which the Option had not been exercised shall continue to be available under the
Plan.
5.3 ADJUSTMENT FOR CHANGE IN OUTSTANDING SHARES. If there is any change,
increase or decrease, in the outstanding shares of Common Stock which is
effected without receipt of additional consideration by the Company, by reason
of a stock dividend, recapitalization, merger, consolidation, stock split,
combination or exchange of stock, or other similar circumstances, then in each
such event, the Board of Directors shall make an appropriate adjustment in the
aggregate number of shares of stock available under the Plan, the number of
shares of stock subject to each outstanding Option and the option prices;
provided, however, that fractional shares shall be rounded to the nearest whole
share. The Board of Directors's determinations in making adjustments shall be
final and conclusive.
5.4 REORGANIZATION OR SALE OF ASSETS. If the Company is merged or
consolidated with another corporation and the Company is not the surviving
corporation, or if all or substantially all of the assets of the Company are
acquired by another entity, or if the Company is liquidated or reorganized, the
Board of Directors shall, as to outstanding Options, either (1) make appropriate
provision for the protection of any such outstanding Options by the substitution
on an equitable basis of appropriate stock of the Company, or of the merged,
consolidated or otherwise reorganized corporation, which will be issuable in
respect of the Common Stock, provided that no additional benefits shall be
conferred upon Optionees as a result of such substitution, and provided further
that the excess of the aggregate fair market value of the shares subject to the
Options immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to such Options immediately before such substitution over the purchase
price thereof, or (2) upon written notice to the Optionees, provide that all
unexercised Options must be exercised within a specified number of days of the
date of such notice or they will be terminated. In either such case, the Board
of Directors may, in its sole discretion, accelerate the exercise dates of
outstanding Options.
SECTION 6: ELIGIBILITY
All Directors who are neither full- nor part-time employees of the Company
or but who are involved in endeavors significant to the Company's success shall
be eligible to receive Options under the Plan. Any Director who is otherwise
eligible to participate, who makes an election in writing not to receive any
grants under the Plan, shall not be eligible to receive any such grants during
the period set forth in such election.
SECTION 7: GRANT OF OPTIONS
7.1 GRANT OF OPTIONS. The Board of Directors may from time to time in its
discretion determine which of the eligible Directors of the Company should
receive Options, the number of shares subject to such Options and the dates on
which such Options are to be granted. All Options granted under the Plan shall
be nonqualified stock options and are not intended to qualify as incentive stock
options within the meaning of Section 422 of the Code.
7.2 OPTION AGREEMENT. Each Option granted under the Plan shall be
evidenced by a written Option Agreement setting forth the terms upon which the
Option is granted. Each Option Agreement shall state the number of shares of
Common Stock, as designated by the Board of Directors, to which that Option
pertains. More than one Option may be granted to an eligible Director.
7.3 OPTION PRICE. The option price per share of Common Stock under each
Option shall be determined by the Board of Directors and stated in the Option
Agreement. The option price for Options granted under the Plan shall not be
less than 100% of the fair market value (determined as set forth in Section 7.5)
of the shares subject to the Option.
7.4 OPTION PERIOD AND LIMITATION ON EXERCISE. Options shall be
exercisable at such times and for such period (the "Option Period") as may be
fixed by the Board of Directors at the date of grant; provided, however, that no
Option shall be exercisable until one and one-half (1 1/2) years from the date
of grant, nor after the expiration of five years from the date of grant. Except
as specifically provided in Section 9 or Section 5.3 or by such different
method as fixed by the Board of Directors, Options shall be exercisable from
time to time, in whole or in part, during the Option period as follows:
Commencing eighteen (18), thirty (30) and forty-two (42) months, respectively,
after the date of grant, an Option may be exercised to the extent of one-third
(1/3) of the total number of shares to which it relates. All or any part of the
shares with
16
respect to which the right to purchase has accrued in accordance with the
provisions of this paragraph may be purchased at the time of such accrual, or
from time to time thereafter during the balance of the Option period.
7.5 DETERMINATION OF FAIR MARKET VALUE. If the Common Stock is listed
upon an established stock exchange or exchanges, then the fair market value per
share shall be deemed to be the average of the quoted closing prices of the
Common Stock on such stock exchange or exchanges on the day preceding the date
of grant, or if no sale of the Common Stock shall have been made on any stock
exchange on that day, on the next preceding day on which there was such a sale.
If the Common Stock is not listed upon an established stock exchange but is
traded in the NASDAQ National Market System, the fair market value per share
shall be deemed to be the closing price of the Common Stock in the National
Market System on the day preceding the date of grant, or if there shall have
been no trading of the Common Stock on that day, on the next preceding day on
which there was such trading. If the Common Stock is not listed upon an
established stock exchange and is not traded in the National Market System, the
fair market value per share shall be deemed to be the mean between the dealer
"bid" and "ask" closing prices of the Common Stock on the NASDAQ System on the
day preceding the date of grant, if there shall have been no trading of the
Common Stock on that day, on the next preceding day on which there was such
trading. If none of these conditions apply, the fair market value per share
shall be deemed to be an amount as determined in good faith by the Board of
Directors by applying any reasonable valuation method.
7.6 OTHER TERMS AND CONDITIONS. Options may contain such other
provisions, which shall not be inconsistent with the Plan, as the Board of
Directors shall deem appropriate, including, without limitation, provisions that
relate the Optionee's ability to exercise an Option to the passage of time or
the achievement of specific goals established by the Board of Directors or the
occurrence of certain events specified by the Board of Directors.
SECTION 8: EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. Subject to the limitations and conditions of the
Plan or the Option Agreement, an Option shall be exercisable, in whole or in
part, from time to time, by giving written notice of exercise to the Secretary
of the Company, which notice shall specify the number of shares of Common Stock
to be purchased and shall be accompanied by (1) payment in full to the Company
of the purchase price of the shares to be purchased, plus (2) payment in cash or
by certified or bank cashier's check of such amount as the Company shall
determine to be sufficient to satisfy any liability it may have for any
withholding of federal, state or local income or other taxes incurred by reason
of the exercise of the Option, and (3) a representation meeting the requirements
of Section 11.2 if requested by the Company. Payment for shares shall be in the
form of either (1) cash, (2) a certified or bank cashier's check to the order of
the Company, (3) shares of the Common Stock, properly endorsed to the Company,
in an amount the fair market value of which on the date of receipt by the
Company (as determined in accordance with Section 7.5) equals or exceeds the
aggregate option price of the shares with respect to which the Option is being
exercised, or (4) in any combination thereof; provided, however, that no payment
may be made in shares of Common Stock unless payment in such form has been
approved in advance by the Board of Directors.
8.2 ACCELERATION OF EXERCISE PERIOD. Notwithstanding any vesting
requirements contained in any Option Agreement, all outstanding Options shall
become immediately exercisable (1) at such time as a third person, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes the beneficial owner of shares of the Company having 15% or more of the
total number of votes that may be cast for the election of Directors of the
Company, or (2) on the date on which the shareholders of the Company approve
(i) any agreement for a merger or consolidation in which the Company will not
survive as an independent corporation or (ii) any sale, exchange or other
disposition of all or substantially all of the Company's assets, or (3) on the
effective date of any sale, exchange or other disposition of greater than 50% in
fair market value of the Company's assets. In determining whether clause (1) of
the preceding sentence has been satisfied, the third person owning shares must
be someone other than a person or an affiliate of a person that, as of
January 1, 1997, is the beneficial owner of shares of the Company having 20% or
more of the total number of votes that may be cast for the election of Directors
of the Company. The Board of Directors's reasonable determination as to whether
such an event has occurred shall be final and conclusive.
SECTION 9: TERMINATION OF POSITION
9.1 TERMINATION OF POSITION OTHER THAN UPON DEATH OR DISABILITY. Upon
termination of an Optionee's position as a Director of the Company, and other
than upon death or disability (as defined herein), an Optionee may, at any time
within three months after the date of termination but not later than the date of
expiration of the Option, exercise the Option to the extent the Optionee was
entitled to do so on the date of termination. Any Options not exercisable as of
the date of termination and any Options or portions of Options of terminated
Optionees not exercised as provided herein shall terminate.
9.2 TERMINATION BY DEATH OF OPTIONEE. If an Optionee shall die while a
Director of the Company or within a period of three months after the termination
of his position as a Director of the Company, the personal representatives of
the Optionee's estate or the person or persons who shall have acquired the
Option from the Optionee by bequest or inheritance may exercise the Option at
any time within the year after the date of death but not later than the
expiration date of the Option, to the extent the Optionee was entitled to do so
on the date of death. Any Options not exercisable as of the date of death and
any Options or portions of Options of deceased Optionees not exercised as
provided herein shall terminate.
17
9.3 TERMINATION BY DISABILITY OF OPTIONEE. Upon termination of an
Optionee's position as a Director of the Company by reason of the Optionee's
disability, the Optionee may exercise the Option at any time within one year
after the date of termination but not later than the expiration date of the
Option, to the extent the Optionee was entitled to do so on the date of
termination. Any Options not exercisable as of the date of termination and any
Options or portions of Options of disabled Optionees not exercised as provided
herein shall terminate. For purposes of this Section 9, Optionee shall be
deemed to have suffered a disability if he is unable to perform his duties as a
Director of the Company by reason of illness, injury or incapacity which lasts
for three consecutive months.
9.4 OPTIONS EXERCISABLE AT TERMINATION. For purposes of the application
of Sections 10.1, 10.2 and 10.3, Options shall be exercisable at termination
only to the extent of the full number of shares the Optionee was entitled to
purchase under the Option on the date of such termination, plus a portion of the
additional number of shares, if any, he would have become entitled to purchase
on the next anniversary date of the date of grant of the Option following such
termination, such portion to be determined by multiplying such additional number
of shares by a fraction, the numerator of which shall be the number of days from
the anniversary date of the date of grant preceding such termination to the date
of such termination and the denominator of which shall be 365. Such portion
shall be rounded, if necessary, to the nearest whole share.
9.5 EXTENSION OF OPTION TERMINATION DATE. The Board of Directors, in its
sole discretion, may extend the termination date of an Option granted under the
Plan without regard to the preceding provisions of this Section 9 and without
regard to the expiration date of the Option that would otherwise apply. In such
event, the termination date shall be a date selected by the Board of Directors
in its sole discretion, but not later than the latest expiration date of the
Option permitted pursuant to Section 7.4. Such extension may be made in the
Option Agreement as originally drawn or by amendment to the Option Agreement,
either prior to or following termination of an Optionee's position as a Director
of the Company.
SECTION 10: NON-TRANSFERABILITY OF OPTION
Options granted pursuant to the Plan are not transferable by the Optionee
other than by will or the laws of descent and distribution and Options shall be
exercisable during the Optionee's lifetime only by the Optionee. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the
Option contrary to the provisions hereof, or upon the levy of any attachment or
similar process upon the Option, the Option shall immediately become null and
void.
SECTION 11: ISSUANCE OF SHARES
11.1 TRANSFER OF SHARES TO OPTIONEE. As soon as practicable after the
Optionee has given the Company written notice of exercise of an Option and has
otherwise met the requirements of Section 8.1, the Company shall issue or
transfer to the Optionee the number of shares of Common Stock as to which the
Option has been exercised and shall deliver to the Optionee a certificate or
certificates therefor, registered in the Optionee's name. In no event shall the
Company be required to transfer fractional shares to the Optionee, and in lieu
thereof, the Company may pay an amount in cash equal to the fair market value of
such fractional shares on the date of exercise. If the issuance or transfer of
shares by the Company would for any reason, in the opinion of counsel for the
Company, violate any applicable federal or state laws or regulations, the
Company may delay issuance or transfer of such shares to the Optionee until
compliance with such laws can reasonably be obtained.
11.2 INVESTMENT REPRESENTATION. Upon demand by the Company, the Optionee
shall deliver to the Company a representation in writing that the purchase of
all shares with respect to which notice of exercise of the Option has been given
by the Optionee is being made for investment only and not for resale or with a
view to distribution, and containing such other representations and provisions
with respect thereto as the Company may require. Upon such demand, delivery of
such representation promptly and prior to the transfer or delivery of any such
shares and prior to the expiration of the option period shall be a condition
precedent to the right to purchase such shares.
SECTION 12: AMENDMENTS
The Board of Directors may at any time and from time to time alter, amend,
suspend or terminate the Plan or any part thereof as it may deem proper, except
that no such action shall diminish or impair the rights under an Option
previously granted. Unless the shareholders of the Company shall have given
their approval, the total number of shares for which Options may be issued under
the Plan shall not be increased, except as provided in Section 5.3, and no
amendment shall be made which reduces the price at which the Common Stock may be
offered under the Plan below the minimum required by Section 7.3, except as
provided in Section 5.3, or which materially modifies the requirements as to
eligibility for participation in the Plan. Subject to the terms and conditions
of the Plan, the Board of Directors may modify, extend or renew outstanding
options granted under the Plan, or accept the surrender of outstanding Options
to the extent not theretofore exercised and authorize the granting of new
Options in substitution therefor, except that no such action shall diminish or
impair the rights under an Option previously granted without the consent of the
Optionee.
18
SECTION 13: TERM OF PLAN
This Plan shall terminate on December 31, 2006; provided, however, that the
Board of Directors may at any time prior thereto suspend or terminate the Plan.
SECTION 14: RIGHTS AS SHAREHOLDER
An Optionee shall have no rights as a shareholder of the Company with
respect to any shares of Common Stock covered by an Option until the date of the
issuance of the stock certificate for such shares.
SECTION 15: GOVERNING LAW
Options granted under this Plan shall be construed and shall take effect in
accordance with the laws of the State of California.
LEE PHARMACEUTICALS
By: Ronald G. Lee
-------------------------------------
Date: January 20, 1997
-----------------------------------
19
P
R
O
X
Y
LEE PHARMACEUTICALS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS ON MARCH 12, 199611, 1997
The undersigned, a shareholder of LEE PHARMACEUTICALS, hereby constitutes and
appoints RONALD G. LEE and MS. HEATHER ROGERS,MRS. MARTHA ALVAREZ, and each of them (with full
power to act without the other), as proxy of the undersigned with full power
of substitution, for and in the name, place and stead of the undersigned, to
attend the Annual Meeting of Shareholders of said Company called and to be
held at 1434 Santa Anita Avenue, South El Monte California, on Tuesday March
12, 199611, 1997 at 1:30 o'clock p.m. and any adjournment thereof, and thereat to
vote as designated below the number of votes or shares the undersigned would
be entitled to vote and with all powers the undersigned would possess if
personally present, including but not limited to the power to cumulate votes
for one or more nominees listed below:
1. ELECTION OF DIRECTORS / / FOR all nominees listed below
(EXCEPT AS MARKED TO THE CONTRARY BELOW)
/ / WITHHOLD AUTHORITY to vote for all nominees
listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK THE BOX NEXT TO THE NOMINEE'S NAME BELOW.)
/ / Henry L. Lee, Jr. / / Ronald G. Lee / / William M. Caldwell IV
2. PROPOSAL TO APPROVE THE APPOINTMENT OF GEORGE BRENNER, CPA, as independent
auditor of the corporation.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO APPROVE THE LEE PHARMACEUTICALS 1997 EMPLOYEE INCENTIVE STOCK
OPTION PLAN.
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO APPROVE THE LEE PHARMACEUTICALS 1997 STOCK OPTION PLAN FOR
OUTSIDE DIRECTORS.
/ / FOR / / AGAINST / / ABSTAIN
5. Upon all matters which may properly come before said meeting, including
matters incident to the conduct of the meeting or any adjournments thereof;
hereby ratifying and confirming all that said attorneys and proxies, or
their substitutes, may lawfully do by virtue thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
Dated:_________________________________1996 -----------------------------_________________________________ 1997 .............................
PLEASE MARK/SIGN, DATE AND RETURN SIGNATURE
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
-----------------------------.............................
SIGNATURE IF HELD JOINTLY
Please sign exactly as name appears hereon. When shares
are held by the joint tenants, both should sign. When
signing as an 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
authorized person.
This proxy when properly executed will be voted in a manner directed herein
by the above signed stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, AND 2.4.