SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 ss. 240.14a-11(c) or ss. 240.14a-12
ARONEX PHARMACEUTICALS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[GRAPHIC OMITTED]
8707 Technology Forest Place
The Woodlands, Texas 77381-1191
April 30, 1998
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of Aronex Pharmaceuticals, Inc. to be held on Thursday, June 11,
1998, at 1:30 p.m., local time, at The Woodlands Executive Conference Center,
2301 North Millbend Drive, The Woodlands, Texas. A Notice of the Annual Meeting,
Proxy Statement and form of proxy are enclosed with this letter.
We encourage you to read the Notice of the Annual Meeting and Proxy
Statement so that you may be informed about the business to come before the
meeting. Your participation in the Company's business is important, regardless
of the number of shares that you hold. To ensure your representation at the
meeting, please promptly sign and return the accompanying proxy card in the
postage-paid envelope.
We look forward to seeing you on June 11, 1998.
Sincerely,
Geoffrey F. Cox, Ph.D.
Chief Executive Officer
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 1998
To the Stockholders of Aronex Pharmaceuticals, Inc.:
The Annual Meeting of Stockholders (the "Annual Meeting") of Aronex
Pharmaceuticals, Inc. (the "Company") will be held on Thursday, June 11, 1998,
at 1:30 p.m., local time, at The Woodlands Executive Conference Center, 2301
North Millbend Drive, The Woodlands, Texas, for the following purposes:
1. To elect two Class I directors of the Company, each to
serve until the Company's 2001 Annual Meeting of Stockholders or until
their respective successors have been duly elected and qualified;
2. To vote upon a proposal to approve and adopt the
Aronex Pharmaceuticals, Inc. 1998 Stock Option Plan;
3. To ratify and approve the appointment of Arthur Andersen
LLP as the Company's independent public accountants for its fiscal year
ending December 31, 1998; and
4. To act upon such other business as may properly come before
the meeting or any adjournments thereof.
Only stockholders of record at the close of business on April 15, 1998
will be entitled to notice of and to vote at the Annual Meeting.
It is important that your shares be represented at the Annual Meeting
regardless of whether you plan to attend. THEREFORE, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE AS
PROMPTLY AS POSSIBLE. If you are present at the Annual Meeting, and wish to do
so, you may revoke the proxy and vote in person.
By Order of the Board of Directors,
Terance A. Murnane
Secretary
The Woodlands, Texas
April 30, 1998
ARONEX PHARMACEUTICALS, INC.
8707 Technology Forest Place
The Woodlands, Texas 77381-1191
---------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 11, 1998
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying Proxy is solicited by the Board of Directors of Aronex
Pharmaceuticals, Inc. (the "Company") to be voted at the Annual Meeting of
Stockholders of the Company to be held on Thursday, June 11, 1998, at 1:30 p.m.,
local time, at The Woodlands Executive Conference Center, 2301 North Millbend
Drive, The Woodlands, Texas, for the purposes set forth in the accompanying
Notice of Annual Meeting of Stockholders, and at any adjournment(s) of the
Annual Meeting. If the accompanying Proxy is properly executed and returned, the
shares it represents will be voted at the Annual Meeting in accordance with the
directions noted thereon or, if no direction is indicated, it will be voted in
favor of the proposals described in this Proxy Statement. In addition, the Proxy
confers discretionary authority to the persons named in the Proxy authorizing
those persons to vote, in their discretion, on any other matters properly
presented at the Annual Meeting. The Board of Directors is not currently aware
of any such other matters.
Each stockholder of the Company has the unconditional right to revoke
his Proxy at any time prior to its exercise, either in person at the Annual
Meeting or by written notice to the Company addressed to Secretary, Aronex
Pharmaceuticals, Inc., 8707 Technology Forest Place, The Woodlands, Texas
77381-1191. No revocation by written notice will be effective unless such notice
has been received by the Secretary of the Company prior to the day of the Annual
Meeting or by the inspector of election at the Annual Meeting.
The principal executive offices of the Company are located at 8707
Technology Forest Place, The Woodlands, Texas 77381-1191. This Proxy Statement
and the accompanying Notice of Annual Meeting of Stockholders and Proxy are
being mailed to the Company's stockholders on or about April 30, 1998.
In addition to the solicitation of proxies by use of this Proxy
Statement, directors, officers and employees of the Company may solicit the
return of proxies by mail, personal interview, telephone or telegraph. Officers
and employees of the Company will not receive additional compensation for their
solicitation efforts, but they will be reimbursed for any out-of-pocket expenses
incurred. Brokerage houses and other custodians, nominees and fiduciaries will
be requested, in connection with the stock registered in their names, to forward
solicitation materials to the beneficial owners of such stock.
All costs of preparing, printing, assembling and mailing the Notice of
Annual Meeting of Stockholders, this Proxy Statement, the enclosed form of Proxy
and any additional materials, as well as the cost of forwarding solicitation
materials to the beneficial owners of stock and all other costs of solicitation,
will be borne by the Company.
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PURPOSES OF THE MEETING
At the Annual Meeting, the Company's stockholders will be asked to
consider and act upon the following matters:
1. The election of two Class I directors of the Company, each to
serve until the Company's 2001 Annual Meeting of Stockholders or
until their respective successors have been duly elected and
qualified;
2. A proposal to approve and adopt the Aronex Pharmaceuticals, Inc.
1998 Stock Option Plan;
3. A proposal to ratify and approve the appointment of Arthur
Andersen LLP as the Company's independent public accountants for
its fiscal year ending December 31, 1998; and
4. Such other business as may properly come before the meeting or
any adjournments thereof.
QUORUM AND VOTING
The close of business on April 15, 1998 has been fixed as the record
date (the "Record Date") for the determination of stockholders entitled to vote
at the Annual Meeting and any adjournment(s) thereof. As of the Record Date, the
Company had issued and outstanding 15,467,281 shares of Common Stock and no
shares of the Company's Preferred Stock, par value $.001 per share.
Each stockholder of record of Common Stock will be entitled to one vote
per share on each matter that is called to vote at the Annual Meeting.
The presence, either in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock is necessary to constitute a
quorum at the Annual Meeting. Abstentions and broker non-votes are counted for
purposes of determining whether a quorum is present. A plurality vote is
required for the election of directors. Accordingly, if a quorum is present at
the Annual Meeting, the two persons receiving the greatest number of votes will
be elected to serve as directors. Withholding authority to vote for a director
nominee and broker non-votes in the election of directors will not affect the
outcome of the election of directors. All other matters to be voted on will be
decided by the vote of the holders of a majority of the shares present or
represented at the Annual Meeting and entitled to vote on such matter. On any
such matter, an abstention will have the same effect as a negative vote but,
because shares held by brokers will not be considered entitled to vote on
matters as to which the brokers withhold authority, a broker non-vote will have
no effect on such vote.
All Proxies that are properly completed, signed and returned prior to
the Annual Meeting will be voted. Any Proxy given by a stockholder may be
revoked at any time before it is exercised by the stockholder (i) filing with
the Secretary of the Company an instrument revoking it, (ii) executing and
returning a Proxy bearing a later date or (iii) attending the Annual Meeting and
expressing a desire to vote his shares of Common Stock in person. Votes will be
counted by American Stock Transfer & Trust Company, the Company's transfer agent
and registrar.
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PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation, as amended,
provides that the Board of Directors of the Company is divided or "classified,"
with respect to the time for which they individually hold office, into three
classes ("Classes I, II and III"), with each class consisting of, as nearly as
possible, one third of the entire Board. The Company's Board of Directors is
currently fixed at six members. Each director is elected to hold office for a
term ending on the date of the third annual meeting following the annual meeting
at which such director was elected. The current term for Class I Directors will
expire at the Annual Meeting. The current terms for Class II and Class III
Directors will expire at the 2000 and 1999 Annual Meetings of Stockholders,
respectively.
The Board of Directors has nominated and urges you to vote for the
election of the two nominees identified below, who have been nominated to serve
as Class I directors for a three-year term or until their successors are duly
elected and qualified. Each of the nominees listed below is a member of the
Company's present Board of Directors. Proxies solicited hereby will be voted for
both nominees unless stockholders specify otherwise in their Proxies.
If, at the time of or prior to the Annual Meeting, any of the nominees
should be unable or decline to serve, the discretionary authority provided in
the Proxy may be used to vote for a substitute or substitutes designated by the
Board of Directors. The Board of Directors has no reason to believe that any
substitute nominee or nominees will be required.
Nominees for Director
The two nominees for election as Class I directors and certain
additional information with respect to each of them, are as follows:
Year First
Name Age Position with the Company Became a Director
---- --- ------------------------- -----------------
Martin P. Sutter..................... 43 Director (Class I) 1986
Ronald J. Brenner, Ph.D.............. 64 Director (Class I) 1995
Martin P. Sutter, a co-founder of the Company, has served as a Director
of the Company since June 1986 and served as Chairman of the Board of Directors
of the Company from 1986 to 1997. Since July 1988, Mr. Sutter has been the
Managing General Partner of The Woodlands Venture Partners, L.P., a venture
capital firm based in The Woodlands, Texas, and the General Partner of The
Woodlands Venture Fund, L.P., one of the Company's principal stockholders. In
addition, Mr. Sutter has been a General Partner of Essex Woodlands Health
Ventures, L.P. since September 1994. From January 1985 to July 1988, he served
as President of The Woodlands Venture Capital Company. Mr. Sutter is the
Chairman of the Board of Directors of Zonagen, Inc., a biotechnology company
based in The Woodlands, Texas, and a director of Targeted Genetics Corporation
and several privately held healthcare and biotechnology companies.
Ronald J. Brenner, Ph.D. has served as a member of the Board of Directors
since September 1995. Since 1988, Dr. Brenner has been a Vice President of
Hillman Medical Ventures, Inc., a venture capital firm, and a general partner of
several Hillman investment partnerships. From 1984 to 1988, Dr. Brenner was
President and Chief Executive Officer of Cytogen Corporation, a biotechnology
company. Prior to 1984, he was Vice President, Corporate External Research, at
Johnson & Johnson, a major pharmaceutical company, and also served as Chairman
of McNeil Pharmaceutical, Ortho Pharmaceutical Corp. and the Cilag Companies,
all subsidiaries of Johnson & Johnson. Dr. Brenner is a director of Cytogen
Corporation and several privately held healthcare and environmental companies.
The Board of Directors recommends that stockholders vote "FOR" the
election of each of the above-named nominees.
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Current and Continuing Directors
Name Age Position
Geoffrey F. Cox, Ph.D. (3)............................ 54 Chairman of the Board of Directors (Class II) and
Chief Executive Officer
Gabriel Lopez-Berestein, M.D.(1)...................... 50 Director (Class II) and Chief Scientific Advisor
Ronald J. Brenner, Ph.D............................... 64 Director (Class I)
James R. Butler(1) (3)................................ 57 Director (Class III)
Martin P. Sutter(2) (3)............................... 43 Director (Class I)
Gregory F. Zaic(2).................................... 50 Director (Class III)
- ---------------------------
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
(3) Member of the Nominating Committee of the Board of Directors
Information regarding the business experience of Mr. Sutter and Dr. Brenner
is set forth above under the heading "-- Nominees for Director."
Geoffrey F. Cox, Ph.D. joined the Company as Chairman of the Board and
Chief Executive Officer in November 1997 and has served as a member of the Board
of Directors since January 1994. Dr. Cox joined Genzyme Corporation in 1984, was
appointed Managing Director of Genzyme, Ltd. (U.K.) in 1986, Senior Vice
President of worldwide manufacturing operations in May 1988 and Executive Vice
President in 1996, with responsibility for manufacturing operations and the
Pharmaceuticals, Diagnostic Products and Genetic Diagnostic Products units of
Genzyme.
Gabriel Lopez-Berestein, M.D., a co-founder of the Company, has served as a
member of the Board of Directors and the Company's Chief Scientific Advisor
since January 1988. Dr. Lopez-Berestein is Professor of Medicine and Chief of
the Immunobiology and Drug Carriers Section at The University of Texas M.D.
Anderson Cancer Center, with which he has been affiliated since 1979. Dr.
Lopez-Berestein is the author of over 125 publications in the areas of
macrophage research and drug carrier technology. Dr. Lopez-Berestein is also the
recipient of a number of grants and awards, including a Scholar Award of the
Leukemia Society of America and various NIH awards.
James R. Butler has served as a member of the Board of Directors since June
1997. Mr. Butler is Senior Vice President, Sales and Marketing for ALZA
Corporation, a California-based pharmaceutical company developing therapeutics
using its proprietary drug delivery systems. Mr. Butler has overseen ALZA
Pharmaceuticals since August 1993. ALZA Pharmaceuticals has responsibility for
domestic sales and marketing, government affairs, ex-U.S. commercialization of
ALZA products, new product planning, and ALZA scientific. ALZA scientific is
responsible for all aspects of the ALZET(R) product line. Prior to joining ALZA
in 1993, Mr. Butler was Vice President and General Manager of Glaxo Inc.'s
Corporate Division. Mr. Butler held numerous sales and marketing positions
during his 23- year tenure at Glaxo.
Gregory F. Zaic has served as a member of the Board of Directors since
September 1995. Mr. Zaic has been an investor primarily focused on medical and
life science investment opportunities since 1983. He currently is a General
Partner of Prince Ventures and has served as acting president and director of
many private and public companies, including GenVec, Inc., Thiktilos, Inc. and
Xylos Corporation. Before his investment career, Mr. Zaic served in several
financial, technical, and operational capacities, including heading the Special
Products Division of Baxter, a manufacturer of custom medical devices for the
cardiopulmonary and intravenous solution administration markets.
-4-
Directors' Meetings and Compensation
During 1997, the Board of Directors met eight times and took certain
additional actions by unanimous written consent in lieu of meetings. During
1997, no director of the Company attended fewer than 75 percent of the meetings
of the Board of Directors, with the exception of George B. Mackaness, who
attended two of the three meetings held while he was a director.
The Company's directors do not receive any cash compensation for
service on the Board of Directors or any committee. The directors are, however,
reimbursed for expenses incurred in connection with attending each Board and
committee meeting. Directors who are not employees of the Company are entitled
to participate in the Company's Amended and Restated 1993 Non-Employee Director
Stock Option Plan (the "Director Plan"). Under the Director Plan, each
non-employee director receives (i) a grant of an option to purchase 25,000
shares of Common Stock upon their initial election to the Board and (ii) an
annual grant of an option to purchase 7,500 shares of Common Stock on December
31 of each year provided that such director has served as a director for at
least six months prior to the date of the grant. In addition, each of the
Company's non-employee directors received a grant of an option to purchase
16,250 shares of Common Stock in 1997 in connection with the amendment of the
Director Plan. The Director Plan also permits discretionary grants of options to
non-employee directors who do not serve on the Compensation Committee of the
Board of Directors. In 1997, Mr. Sutter received, prior to his appointment to
the Compensation Committee, discretionary grants of options entitling him to
purchase 15,000 shares of Common Stock.
The Company has a consulting agreement with Gabriel Lopez-Berestein,
M.D., whereby the Company is committed to pay annual consulting fees of $156,000
for 1998, 1999 and 2000, one-half of which is payable in cash and one-half of
which is payable in shares of restricted Common Stock. The Company paid Dr.
Lopez-Berestein $156,000 in cash under a predecessor agreement during the year
ended December 31, 1997.
Board Committees
The Board of Directors established a Nominating Committee in 1998. The
Company's Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee's functions include making recommendations
concerning the engagement of independent public accountants, reviewing with the
independent public accountants the plan and results of the auditing engagement,
approving professional services provided by the independent public accountants
and reviewing the adequacy of the Company's internal accounting controls. The
Compensation Committee makes recommendations concerning compensation, including
incentive arrangements, for the Company's officers. The Compensation Committee
also administers the Company's Amended and Restated 1989 Stock Option Plan and
will administer the Company's 1998 Stock Option Plan if approved by the
Company's stockholders at the Annual Meeting.
During 1997, the Audit Committee met one time and the Compensation
Committee met four times. During 1997, no director of the Company attended fewer
than 75 percent of the number of meetings of committees on which he served,
except for one audit Committee member, Geoffrey F. Cox, who did not attend the
Audit Committee meeting.
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PROPOSAL NUMBER 2:
APPROVAL AND ADOPTION OF THE ARONEX PHARMACEUTICALS, INC.
1998 STOCK OPTION PLAN
General
The Company uses stock-based awards as a part of its overall
compensation program in order to align the long-term interests of its employees
with those of its stockholders. The Company presently maintains the Amended and
Restated 1989 Stock Option Plan under which employees, consultants and advisors
of the Company are eligible to receive grants of stock options and restricted
stock. As of March 19, 1998, however, the Company had granted or proposed to
grant stock options and restricted stock in excess of the number of shares
authorized under the Amended and Restated 1989 Stock Option Plan.
Accordingly, on March 19, 1998, the Compensation Committee approved the
establishment of a new stock option plan under which options will be granted to
employees, consultants and advisors of the Company. The 1998 Stock Option Plan
(the "1998 Plan") was subsequently approved and adopted by the Board of
Directors on March 19, 1998, subject to approval by the Company's stockholders.
The 1998 Plan authorizes the grant of options ("Options") to purchase up to
750,000 shares of Common Stock, of which Options to purchase an aggregate of
400,000 shares have been granted subject to stockholder approval of the 1998
Plan. The terms of the 1998 Plan are summarized below. In addition, the full
text of the 1998 Plan is set forth in Exhibit A to this Proxy Statement. The
following summary is qualified in its entirety by reference to the text of the
1998 Plan.
Summary of the 1998 Plan
Purpose. The purpose of the 1998 Plan is to advance the best interests
of the Company and its stockholders by providing those employees, consultants
and advisors of the Company who have substantial responsibility for the
management and growth of the Company with additional incentives and an
opportunity to obtain or increase their proprietary interest in the Company,
thereby encouraging them to continue in the employ of the Company.
Effective Date of 1998 Plan. The 1998 Plan became effective as of March
19, 1998, subject to stockholder approval at the Annual Meeting. No Option may
be granted pursuant to the 1998 Plan after March 19, 2008.
Eligibility. The individuals who will be eligible to receive Options
will be those employees, consultants and advisors of the Company as the
Compensation Committee may determine from time to time. The maximum number of
shares subject to Options which may be issued to any person who is granted an
Option under the 1998 Plan (an "Optionee") during any period of three
consecutive years is 250,000 shares.
Reserved Shares. The total number of shares of Common Stock with
respect to which Options may be granted under the 1998 Plan is 750,000 shares of
Common Stock. The shares reserved for issuance upon the exercise of Options may
be treasury shares or authorized but unissued shares.
Administration. To comply with Section 162(m) of the Code, the 1998
Plan will be administered by the Compensation Committee, which will be comprised
solely of two or more Directors who are "outside directors" within the meaning
of the Treasury Regulations promulgated under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). To comply with the requirements
of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the 1998 Plan provides that the Compensation Committee will be comprised
solely of two or more Directors who are "non-employee directors" within the
meaning of Rule 16b-3. All questions of interpretation and application of the
1998 Plan and Options will be subject to the determination of the Compensation
Committee. The 1998 Plan will be administered in such a manner as to permit the
Options granted under it which are designated to be Incentive Options to qualify
as Incentive Options. The Compensation Committee has complete authority to
construe, interpret and administer provisions of the 1998 Plan, to determine
which persons are to be granted
-6-
Options, the terms and conditions of Options, and to make all other
determinations necessary or deemed advisable in the administration of the 1998
Plan.
Incentive Options and Nonqualified Options. The 1998 Plan authorizes
the grant of "Incentive Options" (any Option granted under the 1998 Plan which
is designated as an "Incentive Option" and satisfies the requirements of Section
422 of the Code) and"Nonqualified Options" (any Option granted under the 1998
Plan other than an Incentive Option). To the extent that the aggregate fair
market value (determined as of the time an Incentive Option is granted) of the
Common Stock with respect to which Incentive Options first become exercisable by
an Optionee during any calendar year (under the 1998 Plan and any other
incentive stock option plan(s) of the Company or any affiliate) exceeds
$100,000, the Incentive Options of such Optionees will be treated as
Nonqualified Options. In making this determination, Incentive Options will be
taken into account in the order in which they were granted.
Exercise Price. The 1998 Plan provides that the exercise price at which
Common Stock may be purchased under an Option will not be less than 100% of the
fair market value of the Common Stock on the date of grant, and provided that
the exercise price at which shares of Common Stock may be purchased under an
Incentive Option granted to any 10% holder of Common Stock will not be less than
110% of the fair market value of the Common Stock on the date the Incentive
Option is granted.
Exercise of Options and Amount Exercisable. Each Option may be
exercised from time to time, in whole or in part, in the manner and subject to
the conditions the Compensation Committee, in its sole discretion, may provide
in the written option agreement, as long as the Option is valid and outstanding.
The exercise price must be paid in full in cash at the time an Option is
exercised or, if permitted by the Compensation Committee, by means of a
"cashless exercise" through a broker, by tendering Common Stock already owned by
the participant, or any combination of the foregoing. The Compensation Committee
will determine the period over which individual Options become exercisable.
Expiration or Earlier Termination of Options. The 1998 Plan provides
that no Option may be exercisable after the expiration of 10 years from the date
the Option is granted, and that no Incentive Option granted to a 10% holder of
Common Stock shall be exercisable after the expiration of five years from the
date the Incentive Option is granted.
Unless otherwise provided by the Compensation Committee:
(a) Upon the termination of the employment or engagement of an
Optionee by the Company for any reason other than cause, disability,
the voluntary retirement of the Optionee in accordance with the
Company's retirement policy as then in effect or the death of the
Optionee: (i) Options granted to such Optionee, to the extent that they
were exercisable at the time of such termination, shall remain
exercisable until the expiration of 90 days after such termination, on
which date they shall expire, and (ii) Options granted to such
Optionee, to the extent that they were not exercisable at the time of
such termination, shall expire at the close of business on the date of
such termination.
(b) Upon the termination of the employment or engagement of an
Optionee by the Company on account of the disability, the voluntary
retirement of the Optionee in accordance with the Company's retirement
policy as then in effect or the death of the Optionee: (i) Options
granted to such Optionee, to the extent that they were exercisable at
the time of such termination, shall remain exercisable until the
expiration of one year after such termination, on which date they shall
expire, and (ii) Options granted to such Optionee, to the extent that
they were not exercisable at the time of such termination, shall expire
at the close of business on the date of such termination.
(c) If an Optionee's employment or engagement is terminated
for Cause, all outstanding Options granted to such Optionee shall
expire at the commencement of business on the date of such termination.
Notwithstanding the foregoing, no Option shall be exercisable after the
expiration of its term.
-7-
Non-Transferability and No Rights as Stockholder. Options shall not be
transferable by the Optionee otherwise than by will or under the laws of descent
and distribution and shall be exercisable, during the Optionee's lifetime, only
by him. No Optionee will have any rights as a stockholder with respect to Common
Stock covered by any Option held by him until the date a stock certificate is
issued for the Common Stock acquired on exercise of an Option.
Changes in the Company's Capital Structure. In the event of any stock
dividend, recapitalization, reorganization, merger, consolidation or other
extraordinary event, the Compensation Committee may, to the extent deemed
necessary to preserve the benefits under the 1998 Plan, adjust the number and
kind of shares which thereafter may be made the subject of Options, the number
and kind of shares subject to outstanding Options, and the grant, exercise or
conversion price with respect to any of the foregoing and, if deemed
appropriate, make provision for cash payments to participants. Subject to
certain limitations, the Board of Directors is authorized to amend, suspend or
terminate the 1998 Plan to meet any changes in legal requirements or for any
other purpose permitted by law.
Changes of Control. In the event of a change of control of the Company,
the Compensation Committee may, in its discretion, at the time an Option is
granted or any time thereafter:(i) provide for the acceleration of any time
period relating to the exercise of the Option, (ii) provide for the purchase of
the Option upon the Optionee's request for an amount of cash or other property
that could have been received upon the exercise of the Option had the Option
been then currently exercisable, (iii) adjust the terms of the Option in a
manner determined by the Compensation Committee to reflect the change of
control, (iv) cause the Option to be assumed, or new rights substituted
therefore, by another entity, or (v) make such other provisions as the
Compensation Committee may consider equitable and in the best interest of the
Company.
Amendment or Termination of the 1998 Plan. The Board of Directors of
the Company may amend, terminate or suspend the 1998 Plan at any time, in its
sole and absolute discretion; provided, however, that to the extent required to
maintain the status of any Incentive Option under the Code, the Board may not
approve any amendment that would (i) change the aggregate number of shares of
Common Stock which may be issued under Incentive Options, (ii) change the class
of employees eligible to receive Incentive Options, or (iii) decrease the
exercise price for Incentive Options below the fair market value of the Common
Stock at the time it is granted, without the approval of the Company's
stockholders.
Tax Withholding. The Company shall be entitled to deduct from other
compensation payable to each Optionee any sums required by federal, state, or
local tax law to be withheld with respect to the grant or exercise of an Option.
In the alternative, the Company may require the Optionee (or other person
exercising the Option) to pay the sum directly to the Company. If the Optionee
(or other person exercising the Option) is required to pay the sum directly,
payment in cash or by check of such sums for taxes shall be delivered within ten
days after the date of exercise or lapse of restrictions. The Company shall have
no obligation upon exercise of any Option until payment has been received,
unless withholding (or offset against a cash payment) as of or prior to the date
of exercise is sufficient to cover all sums due with respect to that exercise.
The Company shall not be obligated to advise an Optionee of the existence of the
tax or the amount which the employer corporation will be required to withhold.
Tax Treatment of the Optionee. The Optionee will recognize no income
upon the grant of an Incentive Option and will generally incur no tax on its
exercise, subject to the alternative minimum tax provisions of the Code. If the
Optionee holds the stock acquired upon exercise of an Incentive Option (the
"Incentive Option Shares") for more than one year after the date the option was
exercised and for more than two years after the date the option was granted, the
Optionee generally will realize long-term capital gain or loss (rather than
ordinary income or loss) upon disposition of the Incentive Option Shares. This
gain or loss will be equal to the difference between the amount realized upon
such disposition and the amount paid for the shares.
The Optionee will not recognize any taxable income at the time a
Nonqualified Option is granted. However, upon exercise of a Nonqualified Option,
the Optionee will include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the amount paid for that stock upon exercise of the Nonqualified Option. The
included amount will be treated as ordinary income by the Optionee and will
-8-
be subject to income tax withholding by the Company (either by payment in cash
by the Optionee or withholding from the Optionee's salary). Upon resale of the
shares by the Optionee, any subsequent appreciation or depreciation in the value
of the shares will be treated as capital gain or loss.
Tax Treatment of the Company. The Company will be entitled to a
deduction in connection with the exercise of a Nonqualified Option by a domestic
Optionee to the extent that the Optionee recognizes ordinary income. The Company
will be entitled to a deduction in connection with the disposition of Incentive
Option Shares only to the extent that the Optionee recognizes ordinary income on
a disqualifying disposition of the Incentive Option Shares.
Option Grants under 1998 Plan
The following table sets forth the number of shares of Common Stock
subject to, and the exercise prices of, options granted under the 1998 Plan,
which are subject to stockholder approval of the 1998 Plan at the Annual
Meeting.
New Plan Benefits
Number of Exercise Price
Name Options Granted(2) Per Share
David S. Gordon, M.D................................... 80,000 $3.88
Paul A. Cossum, Ph.D................................... 80,000 $3.88
Praveen Tyle, Ph.D..................................... 80,000 $3.88
Terance A. Murnane..................................... 80,000 $3.88
--------------
Total(1)............................................... 320,000
==============
- ---------------------------
(1) No executive officer other than those listed above or other employee
has been granted options under the 1998 Plan.
(2) Except as otherwise indicated, represents options to purchase 80,000
shares of Common Stock granted to certain executive officers other than Dr. Cox
on March 19, 1998 at an exercise price of $3.88 per share, which exercise price
was equal to the fair market value of the Common Stock on the date of grant. As
of April 15, 1998, the closing sales price of the Company's Common Stock was
$3.13, as reported by The Nasdaq National Stock Market. The options granted to
each individual are subject to the following vesting provisions:
(i) Each option vests and becomes exercisable with respect to
10,000 shares of Common Stock if the Common Stock reaches or exceeds
the stock price target specified for a given year (based upon the
average closing price per share of the Company's Common Stock during
any period of 30 consecutive days within that year) until it has vested
and become exercisable with respect to an aggregate of 40,000 shares.
The stock price targets for the first five years of the options are
$10.00 for 1998, $15.00 for 1999, $20.00 for 2000, $30.00 for 2001, and
$38.00 for 2002;
(ii) Each option vests and becomes exercisable with respect to
5,000 shares of Common Stock in each of the years 1998 through 2002 if
the optionee achieves personal goals established for that year by the
Compensation Committee;
(iii) Each option vests and becomes exercisable with respect
to 5,000 shares of Common Stock in each of the years 1998 through 2002
if the Company achieves corporate goals established for that year by
the Compensation Committee; and
(iv) Each option vests and becomes exercisable with respect to
all of the shares not theretofore vested on January 18, 2008 (nine
years and ten months following the grant date), subject to the
optionee's continued employment with the Company.
The Board of Directors recommends that stockholders vote "FOR" the approval
and adoption of the Aronex Pharmaceuticals, Inc. 1998 Stock Option Plan.
-9-
PROPOSAL NUMBER 3:
RATIFICATION AND APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Arthur Andersen LLP as the
Company's independent public accountants to make an examination of the accounts
of the Company for the fiscal year ending December 31, 1998, subject to
ratification by the Company's stockholders. Representatives of Arthur Andersen
LLP will be present at the Annual Meeting and will have an opportunity to make a
statement, if they desire to do so. They will also be available to respond to
appropriate questions from stockholders attending the Annual Meeting.
The Board of Directors recommends that stockholders vote "FOR" ratification
and approval of the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ended December 31, 1998, and
Proxies executed and returned will be so voted unless contrary instructions are
indicated thereon.
-10-
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") of the Board of Directors of
the Company currently consists of Martin P. Sutter and Gregory F. Zaic, neither
of whom are officers or employees of the Company. The Committee is responsible
for evaluating the performance of management, determining the compensation for
certain executive officers of the Company and administering the Company's
Amended and Restated 1989 Stock Option Plan (the "Employee Option Plan") under
which grants may be made to employees, consultants and advisors of the Company.
The Committee will also administer the 1998 Plan, if it is approved by the
Company's stockholders. The Committee has furnished the following report on
executive compensation for 1997:
Under the supervision of the Committee, the Company has developed a
compensation policy which is designed to attract and retain key executives
responsible for the success of the Company and motivate management to enhance
long-term stockholder value. The annual compensation package for executive
officers primarily consists of (i) a cash salary which reflects the
responsibilities relating to the position and individual performance, (ii)
variable performance awards payable in cash or stock and tied to the
individual's or the Company's achievement of certain goals or milestones and
(iii) long-term stock-based incentive awards which strengthen the mutuality of
interests between the executive officers and the Company's stockholders.
In determining the level and composition of compensation of each of the
Company's executive officers, the Committee takes into account various
qualitative and quantitative indicators of corporate and individual performance.
Although no specific target has been established, the Committee generally seeks
to set salaries comparable to those of peer group companies. In setting such
salaries, the Committee considers its peer group to be certain companies in the
biotechnology industry with market capitalizations similar to that of the
Company. Such comparative group does not necessarily include the companies
comprising the Nasdaq Pharmaceutical Index reflected in the performance graph in
this Proxy Statement, which is the industry categorization the Company has been
placed in by its investment bankers. Because the Company is still in the
development stage, the use of certain traditional performance standards (e.g.,
profitability and return on equity) is not currently appropriate in evaluating
the performance of the Company's executive officers. Consequently, in evaluating
the performance of management, the Committee takes into consideration such
factors as the Company's achievement of specified milestones or goals in its
clinical development programs. In addition, the Committee recognizes performance
and achievements that are more difficult to quantify, such as the successful
supervision of major corporate projects, demonstrated leadership ability and
contributions to the industry and community development. For 1997, the Committee
included in its evaluation the significant progress made by the Company,
including the continuing advancement of the Company's clinical development of
its products.
Base compensation is established through negotiation between the Company
and the executive officer at the time the executive is hired, and then
subsequently adjusted when such officer's base compensation is subject to review
or reconsideration. While the Company has entered into employment agreements
with its executive officers, such agreements provide that base salaries after
the initial year will be determined by the Committee after review. When
establishing or reviewing base compensation levels for each executive officer,
the Committee, in accordance with its general compensation policy, considers
numerous factors, including the responsibilities relating to the position, the
qualifications of the executive and the relevant experience the individual
brings to the Company, strategic goals for which the executive has
responsibility, and compensation levels of companies at a comparable stage of
development who compete with the Company for business, scientific, and executive
talents. No pre-determined weights are given to any one of such factors. The
Committee believes that the base salaries for the executive officers generally,
and the Chief Executive Officer specifically, for fiscal 1997 were comparable to
the Company's peer group companies.
In addition to each executive officer's base compensation, the Committee
may award cash bonuses and/or grant awards under the Company's employee option
plans to chosen executive officers depending on the extent to which certain
defined personal and corporate performance goals are achieved. Such corporate
performance goals are the same as discussed above.
-11-
All employees of the Company, including its executive officers, are
eligible to receive long-term stock-based incentive awards under the Company's
employee option plans as a means of providing such individuals with a continuing
proprietary interest in the Company. Such grants further the mutuality of
interest between the Company's employees and its stockholders by providing
significant incentives for such employees to achieve and maintain high levels of
performance. The Company's employee option plans enhance the Company's ability
to attract and retain the services of qualified individuals. Factors considered
in determining whether such awards are granted to an executive officer of the
Company include the executive's position in the Company, his or her performance
and responsibilities, the amount of stock options, if any, currently held by the
officer, the vesting schedules of any such options and the executive officer's
other compensation. While the Committee does not adhere to any firmly
established formulas or schedules for the issuance of awards such as options or
restricted stock, the Committee will generally tailor the terms of any such
grant to achieve its goal as a long-term incentive award by providing for a
vesting schedule encompassing several years or tying the vesting dates to
specific corporate or personal milestones.
Compensation of Chief Executive Officer
Geoffrey F. Cox, Ph.D. became the Company's Chief Executive Officer in
November 1997. His base annual salary was set at $300,000 pursuant to his
employment agreement with the Company, effective November 3, 1997 (the
"Employment Agreement"). In setting this initial base salary for Dr. Cox, the
Committee evaluated the compensation package for chief executive officers of
peer group biotechnology companies with similar market capitalizations. The
Committee expects that when it reevaluates Dr. Cox's base salary level in the
future, it will consider a variety of factors, including Dr. Cox's
responsibilities, his general background and qualifications, his achievement of
various corporate and personal milestones set by the Committee from time to
time, and compensation levels for executives in Dr. Cox's position and with his
background at peer group companies. The Committee has not attached any
particular relative weighting to the foregoing factors (or any other factors
which the Committee may also consider in reaching compensation decisions for the
Company's executive officers).
Dr. Cox received a sign-on bonus of $220,000, $110,000 of which was paid to
him in cash. He received the remaining $110,000 as a restricted stock award
under the Employee Option Plan, and accordingly, received 17,278 shares of
Common Stock, which grant was calculated based on the average closing sales
price of the Company's Common Stock for the thirty-day period preceding November
3, 1997, $5.44 per share. Under the terms of Dr. Cox's Employment Agreement,
these shares were fully vested on the date of grant. The Employment Agreement
provides that Dr. Cox is eligible to receive future incentive bonus awards in an
amount up to 33% of his base annual salary. The Committee will retain discretion
to determine the amount of any future incentive bonus awards to be paid to Dr.
Cox, and the Committee expects that it will evaluate a number of factors in
reaching this decision, including the Company's strategic goals for which Dr.
Cox has responsibility, his other responsibilities, his initiatives and
contributions to the Company's achievement of various corporate and strategic
goals, and his own achievement of certain personal milestones as determined by
the Committee from time to time.
Dr. Cox was granted a stock option to purchase 500,000 shares of Common
Stock at an exercise price of $4.25 per share. This option grant was negotiated
by the Company and Dr. Cox as part of the Employment Agreement and the exercise
price was the fair market value of the Company's stock specified in the
Employment Agreement, which was September 3, 1997 the date of a letter agreement
pursuant to which Dr. Cox agreed to enter into employment with the Company.
Twenty percent of the underlying shares vested on the date of grant, and as long
as he continues in the employ of the Company, Dr. Cox will be vested in 8,333
shares per month for the remaining 80% of the stock option grant. The Committee
expects that Dr. Cox will participate in the Employee Option Plan on the same
general terms as other participants in the Plan with respect to future stock
option grants that he may be granted from time to time, although the amount of
shares underlying option grants to Dr. Cox will be potentially larger than for
other employees as a result of his position.
The Employment Agreement also provides that for the next four years, Dr.
Cox will be eligible to receive an annual restricted stock grant of 25,000
shares of Common Stock if certain stock price objectives are achieved during
such fiscal years. The Employment Agreement contemplates that these shares will
be fully-vested on issuance.
-12-
The Company paid its former president, James M. Chubb, Ph.D., $235,000 in
annual base salary during 1997. Dr. Chubb's initial base salary was $212,000,
which salary was increased to $235,000 in 1996. The Committee based its decision
to increase Dr. Chubb's salary on a combination of factors, including Dr.
Chubb's responsibilities as the Company's president, the corporate goals for
which he had responsibility, his contribution to the achievement of certain
corporate and personal milestones, and the base salary paid to presidents of
comparable peer group companies.
Dr. Chubb received a cash bonus of $58,750 for 1997. The amount of Dr.
Chubb's 1997 bonus was based on the Company's achievements in advancing the
clinical development of its lead products and Dr. Chubb's achievement of
personal goals, including the successful recruitment and integration of key new
management personnel. During 1997, Dr. Chubb did not receive any stock option or
restricted stock grants under the Employee Option Plan. Dr. Chubb left the
Company's employ in January 1998. Dr. Chubb's severance agreement obligated the
Company to continue to pay Dr. Chubb his base annual salary of $235,000 through
January 1999. The Company also agreed to continue certain employee benefits for
Dr. Chubb and his dependents through January 1999. The Committee also approved
the extension of the vesting period of, and the exercisability period for, all
of Dr. Chubb's outstanding stock options as part of his severance package.
Section 162(m) of the Code, added by the Revenue Reconciliation Act of
1993, places a $1 million cap on the deductible compensation that can be paid to
certain executives of publicly-traded corporations. Amounts that qualify as
"performance based" compensation under Section 162(m)(4)(c) of the Code are
exempt from the cap and do not count toward the $1 million limit. Generally,
stock options will qualify as performance based compensation. The Committee has
discussed and considered and will continue to evaluate the potential impact of
Section 162(m) on the Company in making compensation determinations, but has not
established a set policy with respect to future compensation determinations.
The foregoing report is given by the following members of the Compensation
Committee:
Martin P. Sutter
Gregory F. Zaic
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Exchange Act, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
-13-
EXECUTIVE COMPENSATION
Executive Officers
Set forth below is certain information concerning the executive officers of
the Company, including the business experience of each during the past five
years.
Name Age Position with the Company
---- --- -------------------------
Geoffrey F. Cox, Ph.D...................... 54 Chairman of the Board of Directors (Class II) and
Chief Executive Officer
David S. Gordon, M.D....................... 56 Senior Vice President of Medical Affairs and Chief
Medical Officer
Paul A. Cossum, Ph.D....................... 45 Vice President, Preclinical Development
Praveen Tyle, Ph.D......................... 38 Vice President, Pharmaceutical Development and
Operations
Janet M. Walter............................ 35 Vice President, Marketing and Business Development
Terance A. Murnane......................... 47 Controller and Secretary
Information regarding the business experience of Dr. Cox is set forth above
under the heading "Current and Continuing Directors."
David S. Gordon, M.D. joined the Company in April 1997 as its Senior Vice
President of Medical Affairs and Chief Medical Officer. Dr. Gordon has over 20
years experience in internal medicine, oncology and hematology, clinical
research and the pharmaceutical industry. He has held clinical and
administrative positions with The Liposome Company and the RW Johnson
Pharmaceutical Research Institute of Johnson & Johnson. Prior to positions in
the pharmaceutical industry, Dr. Gordon held a number of academic positions,
including Professor of Medicine (Hematology & Oncology) at Emory University
School of Medicine and Director, Division of Immunology at the Centers for
Disease Control, both in Atlanta, Georgia. He serves as a director of Hycor
Biomedical, Inc. Dr. Gordon is board certified in Internal Medicine and Medical
Oncology. He has published over 100 articles and abstracts in the fields of
cancer, infectious disease and immunology.
Paul A. Cossum, Ph.D. joined Triplex Pharmaceuticals Corporation
("Triplex") as Vice President of Preclinical Development in 1993 and assumed the
position of Vice President of Preclinical Development of the Company in
September 1995 upon the consummation of the Company's mergers with Triplex and
Oncologix, Inc. From 1992 to 1993, he was the Director of Preclinical
Development at Isis Pharmaceuticals. While at Isis, he implemented preclinical
programs to support the development of Investigational New Drug Applications
("INDs") for two anti-viral oligonucleotide compounds. Prior to his employment
at Isis, Dr. Cossum worked in the Department of Pharmacological Sciences at
Genentech, Inc., where he participated in the filing of several INDs and New
Drug Applications ("NDAs") for certain endocrine, cardiovascular and neurologic
therapeutic proteins. He has published widely in the fields of metabolism and
toxicology of oligonucleotides, recombinant proteins and conventional drugs.
Praveen Tyle, Ph.D. joined the Company in February 1997 as its Vice
President of Pharmaceutical Development and Operations. Dr. Tyle has more than
14 years of worldwide pharmaceutical industry experience, serving most recently
as Senior Director, Pharmaceutical Development at Agouron Pharmaceuticals, Inc.,
where he was responsible for the development of preclinical and clinical
products and their preparation toward commercialization. From 1984 to 1991, Dr.
Tyle held product development positions at American Cyanamid Company and
Novartis (formerly Sandoz Pharmaceuticals Corporation). Dr. Tyle serves as a
member of the Scientific Advisory Board of a French biotechnology company,
Biovector Therapeutics, S.A., and is a scientific advisor to Warner Chilcott
Laboratories in New Jersey. Dr. Tyle also serves as an adjunct Professor of
Pharmaceutical Sciences at the University of Houston. He holds several U.S.
patents in the areas of drug development and delivery systems.
Janet M. Walter joined the Company in August 1997 as Vice President,
Marketing and Business Development. Ms. Walter, who has more than ten years of
oncology marketing experience, served most recently as Director, Global
-14-
Marketing at Schering-Plough Pharmaceuticals, Inc. where she was responsible for
the worldwide development of INTRON(R)A. She also served as Senior Product
Manager for Bristol-Myers Squibb Oncology Division, where she was responsible
for the launch of TAXOL(R) in several different markets, and Product Manager at
US Bioscience. In addition, Ms. Walter has several years of prior experience in
oncology clinical research and field sales.
Terance A. Murnane joined the Company in May 1990 as its Controller and was
appointed Secretary in January 1992. Mr. Murnane was a self-employed accountant
from February 1988 until April 1990. From October 1987 to February 1988, he
served as the Controller for a privately-held wholesale company. Prior to that
time, he spent ten years in the Private Business/Audit Department at KPMG Peat
Marwick, an international accounting firm, serving most recently as Senior
Manager. Mr. Murnane is a Certified Public Accountant.
Compensation of Executive Officers
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued during the last three years to the Company's Chief
Executive Officer, to its former President and to each of the other executive
officers of the Company, determined as of the end of the last fiscal year, whose
annual compensation exceeded $100,000 (the "Named Executive Officers"):
Long-Term
Annual Compensation Compensation
Restricted Securities
Stock Underlying All Other
Name and Principal Position Year Salary Bonus Awards Options (#) Compensation
- -------------------------------------- -------- ---------------- ------------- -------------- -----------------------------
Geoffrey F. Cox, Ph.D................. 1997 $ 50,000(1) $ 110,000(2) $ 93,992(3) 500,000 $ 134(4)
Chief Executive Officer
David S. Gordon, M.D.................. 1997 $ 146,208(5) $ 28,400 -- 125,000 $ 21,360(6)
Senior Vice President of Medical
Affairs and Chief Medical Officer
Paul A. Cossum, Ph.D.................. 1997 $ 168,000 $ 33,600 -- 41,000 $ 1,302(8)
Vice President, Preclinical 1996 $ 163,000 $ 2,000 -- 44,800 $ 1,292(8)
Development 1995 $ 46,667(7) -- -- 20,000 $ 17,000(9)
Praveen Tyle, Ph.D.................... 1997 $ 147,377(10) $ 30,100 $ 36,250(11) 125,000 $ 77,956(12)
Vice President, Pharmaceutical
Development and Operations
Janet M. Walter....................... 1997 $ 60,000(13) $ 12,000 -- 100,000 $ 8,974(14)
Vice President, Marketing and
Business Development
James M. Chubb, Ph.D.................. 1997 $ 235,000 $ 58,750 -- $ 8,339(15)
Former President 1996 $ 221,583 $ 10,000 -- 208,000 $ 32,389(16)
1995 $ 61,833(17) -- $ 106,250(18) 125,000 $ 42,075(19)
- ---------------------------
(1) Dr. Cox joined the Company as Chief Executive Officer and Chairman of the
Board in November 1997 at an annual base salary of $300,000.
(2) Represents a cash bonus paid upon commencement of employment.
(3) Represents a stock bonus of 17,278 shares of Common Stock issued upon
commencement of employment and recorded at fair market value at the time of
issuance.
(4) Represents taxable life insurance.
(5) Dr. Gordon joined the Company as Senior Vice President of Medical Affairs
and Chief Medical Officer in April 1997 at an annual base salary of
$213,000.
(6) Represents (i) $6,952 in relocation costs, (ii) $12,250 in housing
allowance, (iii) $1,158 in taxable life insurance and (iv) $1,000 in
matching contributions to the Company's 401(k) savings plan.
(7) Dr. Cossum joined the Company as Vice President of Preclinical Development
in September 1995 at an annual base salary of $160,000. Dr. Cossum's
current annual base salary is $168,000.
(8) Represents (i) $1,000 in matching
contributions to the Company's 401(k) savings plan in 1996 and 1997,
respectively, and (ii) taxable life insurance of $292 and $302 in 1996 and
1997, respectively.
(9) Represents the forgiveness of a portion of the
balance of a loan to Dr. Cossum.
(10) Dr. Tyle joined the Company as Vice
President of Pharmaceutical Development and Operations in February 1997 at
an annual base salary of $168,000. Dr. Tyle's current annual base salary is
$176,400.
-15-
(11) Represents a stock bonus of 5,000 shares of Common Stock issued upon
commencement of employment and recorded at fair market value at the time of
issuance.
(12) Represents (i) $46,386 in relocation costs, (ii) $30,397 in estimated
federal income taxes relating to such relocation costs, which are
reimbursable by the Company in 1998, (iii) $173 in taxable life insurance
and (iv) $1,000 in matching contributions to the Company's 401(k) savings
plan.
(13) Janet M. Walter joined the Company as Vice President, Marketing
and Business Development in August 1997 at an annual base salary of
$160,000.
(14) Represents (i) $7,924 in relocation costs, (ii) $50 in
taxable life insurance and (iii) $1,000 in matching contributions to the
Company's 401(k) savings plan.
(15) Represents (i) $7,339 in taxable life
and long-term disability insurance and (ii) $1,000 in matching
contributions to the Company's 401(k) savings plan.
(16) Represents (i)$25,695 in federal income taxes incurred by Dr. Chubb in
connection with the 1996 grant of 25,000 shares of Common Stock that the
Company reimbursed in 1997, (ii) $5,694 in taxable life and long-term
disability insurance and (iii) $1,000 in matching contributions to the
Company's 401(k) savings plan.
(17) Dr. Chubb joined the Company as President in September 1995 at an annual
base salary of $212,000.
(18) Represents a stock bonus of 25,000 shares of Common Stock issued upon
commencement of employment and recorded at fair market value at the time of
issuance.
(19) Represents the estimated amount of federal income taxes incurred by Dr.
Chubb in connection with the grant of 25,000 shares of Common Stock that
the Company reimbursed in 1996.
Option Grants in 1997
The following table provides certain information with respect to
options granted to the Chief Executive Officer and to each of the Named
Executive Officers during the fiscal year ended December 31, 1997 under the
Company's Employee Option Plan:
Individual Grants
Number of Percent of Potential Realizable Value at
Securities Total Options Market Assumed Annual Rates of
Underlying Granted to Exercise Price on Stock Price Appreciation
Options Employees in Price per Date of Expiration for Option Term(1)
Name Granted (#) Fiscal Year Share Grant Date 5% 10%
---- ----------- ----------- ----- ----- ---- -- ---
Geoffrey F. Cox 500,000 41.3% $ 4.25 $ 4.25 09/03/04 $ 865,088 $ 1,986,602
David S. Gordon 125,000 10.3% $ 5.13 $ 5.13 04/28/04 $ 261,053 $ 599,486
Paul A. Cossum 31,000 2.6% $ 4.75 $ 4.75 05/14/04 $ 59,946 $ 137,660
10,000 0.8% $ 4.75 $ 4.75 12/09/04 $ 19,337 $ 44,406
Praveen Tyle 100,000 8.3% $ 7.25 $ 7.25 02/21/04 $ 295,148 $ 677,782
25,000 2.1% $ 4.75 $ 4.75 12/09/04 $ 48,343 $ 111,016
Janet M. Walter 100,000 8.3% $ 4.50 $ 4.50 08/18/04 $ 183,195 $ 420,692
James M. Chubb -- -- -- -- -- -- --
(1) The Securities and Exchange Commission requires disclosure of the
potential realizable value or present value of each grant. The
disclosure assumes the options will be held for the full seven-year
term prior to exercise. Such options may be exercised prior to the end
of such seven-year term. The actual value, if any, an executive officer
may realize will depend upon the excess of the stock price over the
exercise price on the date the option is exercised. There can be no
assurance that the stock price will appreciate at the rates shown in
the table.
Year-End Option Values
The following table sets forth certain information regarding (i) the
number of shares of Common Stock underlying unexercised options held by the
Chief Executive Officer and each Named Executive Officer as of December 31,
1997; (ii) the value, at December 31, 1997, of exercisable and unexercisable
"in-the-money" stock options held by the Chief Executive Officer and each Named
Executive Officer. Neither the Chief Executive Officer nor any other Named
Executive Officer exercised any stock options during the year ended December 31,
1997.
-16-
1997 Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End (#) at Fiscal Year End ($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------- ------------ ---------------- -------------- --------------
Geoffrey F. Cox, Ph.D............ 149,155 383,345 $ -- $ --
David S. Gordon, M.D............. 42,000 83,000 $ -- $ --
Paul A. Cossum, Ph.D............. 45,306 72,489 $ 42,922 $ 100
Praveen Tyle, Ph.D............... 49,500 75,500 $ -- $ --
Janet M. Walter.................. 35,932 64,068 $ -- $ --
James. M. Chubb, Ph.D............ 158,460 199,224 $ 99,514 $ 548
(1) A stock option is "in-the-money" if the closing market price of the
Company's Common Stock exceeds the exercise price of such stock
option. The value of "in-the-money" unexercised stock options set
forth in the foregoing table represents the difference between the
exercise price of such options and the closing sales price of the
Company's Common Stock on December 31, 1997, as reported by the Nasdaq
Stock Market, $4.25 per share.
Performance Graph
The following performance graph compares the performance of the
Company's Common Stock to the Nasdaq Composite Index and to the Nasdaq Index of
Pharmaceutical Companies. The graph covers the period from July 10, 1992 (the
date on which the Company's Common Stock was registered under Section 12(g) of
the Exchange Act), to December 31, 1997. The graph assumes that the value of the
investment in the Company's Common Stock and each index was 100 at July 10, 1992
and that all dividends were reinvested.
[GRAPHIC OMITTED]
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
Aronex Pharmaceuticals, Inc. 100.00 57.14 24.29 50.00 53.57 24.29
Nasdaq Composite Index 100.00 114.79 112.21 158.69 195.18 239.57
Nasdaq Pharmaceutical Index 100.00 89.13 67.08 122.72 123.08 127.09
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or under the Exchange Act, except to the extent that the Company
specifically incorporates this graph by reference, and shall not otherwise be
deemed filed under such acts.
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends depicted in the graph
above. The Company will not make or endorse any predictions as to future stock
performance.
-17-
Employment Agreements
The Company has entered into employment agreements with Dr. Cox, Dr.
Gordon, Dr. Cossum, Dr. Tyle, Ms. Walter and Mr. Murnane which establish their
annual base salaries and provide for the payment of such bonus compensation as
may be awarded by the Board of Directors and for their participation in all
employee benefit plans sponsored by the Company. The employment agreement for
Dr. Cox has a primary term ending in 2000, with automatic monthly renewals
starting in May 1999 for an on-going eighteen months unless terminated by either
party. All other employment agreements are for a one year period and renew
automatically for one year periods unless terminated by either party. All
agreements provide that if the employee is terminated for any reason other than
cause, the Company is obligated to pay to the employee an amount equal to one
year's annual base salary and continue the provision of employment benefits for
one year following termination.
401(k) Plan
The Company maintains a retirement savings plan, effective as amended
on January 1, 1991, in which any employee of the Company who has completed one
month of employment may elect to participate. The plan is an individual account
plan providing for deferred compensation as described in Section 401(k) of the
Code and is subject to, and intended to comply with, the Employee Retirement
Income Security Act of 1974, as amended. Each eligible employee is permitted to
contribute up to 20% of his annual salary up to the applicable statutory maximum
prescribed in the Code. The Company may, in its discretion, contribute an amount
equal to the employee's contribution, but such Company contribution may not
exceed an amount equal to six percent of the employee's compensation. A
participant is 50% vested in the accrued benefits derived from the Company's
contributions after completion of one year of employment following his election
to participate in the plan, and 100% vested in such contributions after
completion of two years of employment following such election. Participants may
receive hardship loans under the terms of the plan. The plan provides for
distributions in the event a participant dies, reaches the age of 65, becomes
disabled or terminates his employment prior to the age of 65. The Company made
contributions of approximately $45,700 under the 401(k) plan in 1997.
CERTAIN TRANSACTIONS
The Company has a consulting agreement with Gabriel Lopez-Berestein,
M.D., whereby the Company is committed to pay annual consulting fees of $156,000
for 1998, 1999 and 2000, one-half of which is payable in cash and one-half of
which is payable in shares of restricted Common Stock. The Company paid Dr.
Lopez-Berestein $156,000 in cash under a predecessor agreement during the year
ended December 31, 1997.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the
beneficial ownership of the Company's Common Stock as of February 28, 1998 by
(i) each person who is known by the Company to own beneficially more than five
percent of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) the Company's chief executive officer and each of the other Named
Executive Officers and (iv) all directors and executive officers as a group.
Except as described below, each of the persons listed in the table has sole
voting and investment power with respect to the shares listed.
Number of Shares
of Common Stock Percentage of Shares
Name Beneficially Owned Beneficially Owned
Paragon Associates and Paragon Associates II (1)..... 1,351,000 8.7%
Joint Venture and the Bradbury Dyer Foundation
500 Crescent Court, Suite 260
Dallas, Texas 75201
Hillman Medical Venture Partnerships (2)............. 1,187,925 7.7%
824 Market Street, Suite 900
Wilmington, Delaware 19801
Amerindo Investment Advisors, Inc. (3)............... 1,023,750 6.6%
One Embarcadero Center, Suite 2300
San Francisco, California 94111
HealthCare Ventures Partnerships (4)................. 977,825 6.3%
Twin Towers at Metro Bank
379 Thornall Street
Edison, New Jersey 08837
The Allstate Corporation (5)......................... 810,962 5.2%
2775 Sanders Road
Northbrook, Illinois 60062
Martin P. Sutter (6)................................. 550,883 3.5%
Geoffrey F. Cox (7).................................. 200,767 1.3%
Gabriel Lopez-Berestein (8).......................... 142,889 *
Ronald J. Brenner (9)................................ 1,238,013 8.0%
Gregory F. Zaic (10)................................. 445,239 2.9%
James R. Butler (11)................................. 30,500 *
Paul A. Cossum (12).................................. 57,952 *
Praveen Tyle (13).................................... 66,081 *
David S. Gordon (14)................................. 57,333 *
Janet M. Walter (15)................................. 41,800 *
James M. Chubb (16).................................. 278,627 1.8%
All directors and officers as a group
(11 persons) (6)-(15)............................. 2,860,415 18.4%
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* Less than one percent.
(1) Consists of 1,331,000 shares beneficially owned by Paragon Associates II
Joint Venture ("Paragon JV"), which includes ownership of Paragon
Associates and Paragon Associates II, and 20,000 shares owned by the
Bradbury Dyer Foundation ("Foundation"). The sole general partner of
Paragon Associates and Paragon JV, Bradbury Dyer III, may be deemed to be
the beneficial ownership of 1,351,000 shares.
(2) Consists of 141,232 shares owned by Hillman Medical Ventures 1989 L.P.,
441,383 shares owned by Hillman Medical Ventures 1990 L.P. and 605,310
shares owned by Hillman Medical Ventures 1991 L.P. (collectively, the
"Hillman Medical Venture Partnerships"). The general partners of the
Hillman Medical Venture Partnerships are Cashon Biomedical Associates, L.P.
and Hillman/Dover Limited Partnership. The general partner of Hillman/Dover
Partnership is a wholly-owned subsidiary of The Hillman Company, a firm
engaged in diversified investments and operations. The Hillman Company is
controlled by Henry L. Hillman, Elsie Hilliard Hillman and C.G.
Grefenstette, Trustees of the Henry L. Hillman Trust, which Trustees may be
deemed the beneficial owners of the 1,187,925 shares owned by the Hillman
Medical Venture Partnerships. Dr. Brenner, a director of the Company, is
the managing partner of Cashon Biomedical Associates, L.P., of which the
other general partners are Hal S. Broderson, M.D. and Charles G. Hadley.
Dr. Brenner, Dr. Broderson and Mr. Hadley may be deemed to beneficially own
such shares.
(3) Consists of 1,006,250 shares owned by Amerindo Investment Advisors, Inc.
("Amerindo"), 7,500 shares owned by Amerindo Advisors, Inc. ("Amerindo
Panama"), and 10,000 shares owned by Amerindo Investment Advisors Inc.
Profit Sharing Trust ("Plan"). The sole shareholders and directors of
Amerindo and Amerindo Panama are Alberto W. Vilar and Gary A. Tanaka, each
of whom may by deemed to be the beneficial owner of the 1,013,750 shares
owned by Amerindo and Amerindo Panama. Mr. Vilar is sole trustee of the
Plan and may be deemed to be the beneficial owner of the 10,000 shares
owned by the Plan. Based on Schedule 13G, Amendment No. 3, dated February
13, 1998, of Amerindo, Amerindo Panama, the Plan, Mr. Vilar and Mr. Tanaka.
(4) Consists of 255,132 shares owned by HealthCare Ventures I, L.P., 199,391
shares owned by HealthCare Ventures II, L.P., 404,651 shares owned by
HealthCare Ventures III, L.P. and 118,651 shares owned by HealthCare
Ventures IV, L.P. (collectively, the "HealthCare Venture Partnerships").
James H. Cavanaugh, Ph.D., Harold R. Werner, John W. Littlechild, and
William W. Crouse are general partners of each of the HealthCare Venture
Partnerships and may be deemed to beneficially own such shares.
(5) Consists of 810,962 shares owned by Allstate Insurance Company, a wholly
owned subsidiary of The Allstate Corporation, based on Schedule 13G,
Amendment No. 5, dated February 10, 1998, of The Allstate Corporation.
(6) Includes 463,883 shares owned by The Woodlands Venture Fund, L.P. Mr.
Sutter is a general partner of The Woodlands Venture Partners, L.P., which
is the general partner of The Woodlands Venture Fund, L.P. Mr. Sutter
disclaims beneficial ownership of the 463,883 shares owned by The Woodlands
Venture Fund, L.P. Also includes 85,750 shares which may be acquired on the
exercise of the currently vested portion of stock options.
(7) Includes 182,489 shares that may be acquired on the exercise of stock
options. Also includes 17,278 shares owned by Dr. Cox's spouse which may be
considered to be beneficially owned.
(8) Includes 65,000 shares that may be acquired on the exercise of stock
options. Excludes 19,697 shares held by a relative of Dr. Lopez-Berestein,
to which he disclaims beneficial ownership.
(9) Includes 1,187,925 shares owned by the Hillman Medical Venture
Partnerships, of which Dr. Brenner is the managing general partner of one
of the general partners. Also includes 40,000 shares which may be acquired
on the exercise of the currently vested portion of stock options.
(10) Includes 403,539 shares owned by Prince Venture Partners III, L.P. Mr. Zaic
is the general partner of Prince Ventures, L.P., which is a general partner
of Prince Venture Partners III, L.P. Mr. Zaic disclaims beneficial
ownership of the shares held by Prince Venture Partners III, L.P. Also
includes 40,000 shares which may be acquired on the exercise of the
currently vested portion of stock options.
(11) Includes 25,000 shares that may be acquired on the exercise of currently
vested stock options. Also includes 3,000 shares owned through The Butler
Living Trust and 2,500 shares owned by the spouse of Mr. Butler which may
be considered to be beneficially owned.
(12) Includes 52,287 shares that may be acquired on the exercise of the
currently vested portion of stock options. Also includes 1,000 shares owned
by two daughters of Dr. Cossum which may be considered to be beneficially
owned.
(13) Includes 56,967 shares that may be acquired on the exercise of the
currently vested portion of stock options.
(14) Includes 50,500 shares that may be acquired on the exercise of the
currently vested portion of stock options. Also includes 3,000 shares owned
by Gordon Strategic, Inc. which is wholly owned by Dr. Gordon and 500
shares owned by Dr. Gordon's spouse which may be considered to be
beneficially owned.
(15) Represents shares that may be acquired on the exercise of currently vested
stock options.
(16) Includes 186,165 shares that may be acquired on the exercise of the
currently vested portion of stock options.
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COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of the
Common Stock, to file initial reports of ownership and reports of changes in
ownership (Forms 3, 4, and 5) of Common Stock with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Company with copies of all such
forms that they file.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and on written representations by
certain reporting persons that no reports on Form 5 were required, the Company
believes that during the fiscal year ended December 31, 1997, all Section 16(a)
filing requirements applicable to its officers, directors and 10% stockholders
were complied with in a timely manner, with the exception of late filings on
Form 4 covering two transactions by David S. Gordon and on an amended Form 3 by
James R. Butler.
PROPOSAL OF STOCKHOLDERS
Any proposal of a stockholder intended to be presented at the next annual
meeting must be received at the Company's principal executive offices no later
than February 1, 1999, if the proposal is to be considered for inclusion in the
Company's Proxy Statement relating to such meeting.
FINANCIAL INFORMATION
A copy of the Company's Annual Report on Form 10-K, including any financial
statements and schedules and exhibits thereto, may be obtained without charge by
written request to Terance A. Murnane, Controller and Secretary, Aronex
Pharmaceuticals, Inc., 8707 Technology Forest Place, The Woodlands, Texas
77381-1191.
By Order of the Board of Directors
Terance A. Murnane
Secretary
April 30, 1998
The Woodlands, Texas
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EXHIBIT A
ARONEX PHARMACEUTICALS, INC.
1998 STOCK OPTION PLAN
ARTICLE I
PLAN
1.1 PURPOSE. This Plan is a plan for employees and consultants of the
Company and its Affiliates and is intended to advance the best interests of the
Company, its Affiliates, and its stockholders by providing those persons who
have substantial responsibility for the management and growth of the Company and
its Affiliates with additional incentives and an opportunity to obtain or
increase their proprietary interest in the Company, thereby encouraging them to
continue in the employ of the Company or any of its Affiliates.
1.2 EFFECTIVE DATE OF PLAN. This Plan shall be effective March 19, 1998
(the "Effective Date"), if within one year of that date it shall have been
approved by at least a majority vote of stockholders voting in person or by
proxy at a duly held stockholders' meeting, or if the provisions of the
corporate charter, by-laws or applicable state law prescribes a greater degree
of stockholder approval for this action, the approval by the holders of that
percentage, at a duly held meeting of stockholders. No Option shall be granted
pursuant to this Plan after March 19, 2008.
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout this Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
2.2 "BOARD OF DIRECTORS" means the board of directors of the Company.
2.3 "CAUSE," when used in connection with the termination of an
Employee's employment or Consultant's engagement by the Company, means (i) any
material failure of the Employee or Consultant to perform his duties under any
employment or consulting agreement with the Company (other than any such failure
resulting from the Employee or Consultant's incapacity due to Disability),
subject to any written notice and opportunity to cure provided for by such
employment or consulting agreement, (ii) the Employee or Consultant's gross
negligence or willful or intentional wrongdoing or misconduct relating to his
employment or engagement by the Company, (iii) a material breach by the Employee
or Consultant of any proprietary information, inventions or non-competition
agreement between the Employee or Consultant and the Company, (iv) a material
breach by the Employee or Consultant of any insider trading, business ethics or
similar policy of the Company, or (iv) conviction of the Employee or Consultant
of a felony offense or a crime involving moral turpitude.
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2.4 "CHANGE OF CONTROL" means:
(i) the acquisition after the Effective Date by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended) (a "Person")
of beneficial ownership of 30 percent or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Common
Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Voting Securities"), provided that for
purposes of this subsection (i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (D) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (A), (B) and (C) of subsection (iii) hereof; or
(ii) individuals, who, as of the Effective Date, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any individual becoming a
director subsequent to the Effective Date whose nomination or election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual was a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) consummation after the Effective Date of a
reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company (a "Corporate
Transaction") unless, in each case, following such Corporate Transaction,
(A) (1) all or substantially all of the persons who were the beneficial
owners of the Outstanding Common Stock immediately prior to such Corporate
Transaction beneficially own, directly or indirectly, more than 60 percent
of the then outstanding shares of common stock of the corporation
resulting from such Corporate Transaction, and (2) all or substantially
all of the persons who were the beneficial owners of the Outstanding
Voting Securities immediately prior to such Corporate Transaction
beneficially own directly or indirectly, more than 60 percent of the
combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors of the corporation
resulting from such Corporate Transaction (including, without limitation,
a corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership of the Outstanding Common Stock and the outstanding Voting
Securities immediately prior to such Corporate Transaction, as the case
may be, (B) no Person (excluding (1) any corporation resulting from such
Corporate Transaction or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Corporate Transaction
and (2) any Person approved by the Incumbent Board) beneficially owns,
directly or indirectly, 20 percent or more of the then outstanding shares
of common stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to such Corporate Transaction and (C) at least a majority of
the members of the board of directors of the corporation resulting from
such Corporate Transaction were members of the Incumbent Board at the time
of the execution of the initial agreement or of the action of the Board
providing for such Corporate Transaction.
2.5 "CODE" means the internal Revenue Code of 1986, as amended.
2.6 "COMMITTEE" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board of Directors. The
Committee shall be comprised solely of at least two members who are Non-
Employee Directors and Outside Directors.
2.7 "COMPANY" means Aronex Pharmaceuticals, Inc., a Delaware
corporation.
2.8 "CONSULTANT" means a person who is engaged by the Company or any
Affiliate to render consulting services and to whom an Option is granted.
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2.9 "DISABILITY" means a physical or mental infirmity which, in the
opinion of a physician selected by the Committee, shall prevent the Employee or
Consultant from earning a reasonable livelihood with the Company or any
Affiliate and which can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months and
which: (a) was not contracted, suffered or incurred while the Employee or
Consultant was engaged in, or did not result from having engaged in, a felonious
criminal enterprise; (b) did not result from alcoholism or addiction to
narcotics; and (c) did not result from an injury incurred while a member of the
Armed Forces of the United States for which the Employee or Consultant receives
a military pension.
2.10 "EMPLOYEE" means a person employed by the Company or any
Affiliate to whom an Option is granted.
2.11 "FAIR MARKET VALUE" of the Stock as of any date means (a) the last
sale price of the Stock on that date (or, if there was no sale on such date, the
next preceding date on which there was such a sale) as reported on the principal
securities exchange on which the Stock is listed; or (b) if the Stock is not
listed on a securities exchange, the last sale price of the Stock on that date
(or, if there was no sale on such date, the next preceding date on which there
was such a sale) as reported on the Nasdaq Stock Market; or (c) if the Stock is
not listed on the Nasdaq Stock Market, the average of the high and low bid
quotations for the Stock on that date as reported by the National Quotation
Bureau Incorporated; or (d) if none of the foregoing is applicable, an amount at
the election of the Committee equal to (x) the average between the closing bid
and ask prices per share of Stock on the last preceding date on which those
prices were reported or (y) an amount as determined by the Committee in its sole
discretion.
2.12 "INCENTIVE OPTION" means an Option granted under this Plan which
is designated as an "Incentive Option" and satisfies the requirements of Section
422 of the Code.
2.13 "NON-EMPLOYEE DIRECTOR" means a "non-employee director" as that
term is defined in Rule 16b- 3 under the Securities Exchange Act of 1934, as
amended.
2.14 "NONQUALIFIED OPTION" means an Option granted under this Plan
other than an Incentive Option.
2.15 "OPTION" means either an Incentive Option or a Nonqualified Option
granted under this Plan to purchase shares of Stock.
2.16 "OPTION AGREEMENT" means the written agreement which sets out the
terms of an Option.
2.17 "OPTIONEE" means a person who is granted an Option under this
Plan.
2.18 "OUTSIDE DIRECTOR" means a member of the Board of Directors
serving on the Committee who satisfies the criteria of Section 162(m) of the
Code.
2.19 "PLAN" means the Aronex Pharmaceuticals, Inc. 1998 Stock Option
Plan, as set out in this document and as it may be amended from time to time.
2.20 "STOCK" means the common stock of the Company, par value $.001 per
share, or, in the event that the outstanding shares of common stock are later
changed into or exchanged for a different class of stock or securities of the
Company or another corporation, that other stock or security.
2.21 "10% STOCKHOLDER" means an individual who, at the time the Option
is granted, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Affiliate. An individual
shall be considered as owning the stock owned, directly or indirectly, by or for
his brothers and sisters (whether by the whole or half blood), spouse,
ancestors, and lineal descendants; and stock owned, directly or indirectly, by
or for a corporation, partnership, estate, or trust, shall be considered as
being owned proportionately by or for its stockholders, partners or
beneficiaries.
A-3
ARTICLE III
ELIGIBILITY
The individuals who shall be eligible to receive Incentive Options
shall be those key employees of the Company or any of its Affiliates as the
Committee shall determine from time to time. The individuals who shall be
eligible to receive Nonqualified Options shall be those key employees and
consultants of the Company or any of its Affiliates as the Committee shall
determine from time to time. No member of the Committee shall be eligible to
receive any Option or to receive stock, stock options, or stock appreciation
rights under any other plan of the Company or any of its Affiliates, if to do so
would cause the individual not to be a Non-Employee Director or an Outside
Director. The Board of Directors may designate one or more individuals who shall
not be eligible to receive any Option under this Plan or under other similar
plans of the Company.
ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS
4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant to those
individuals, as it shall from time to time determine, Options under the terms
and conditions of this Plan. Subject only to any applicable limitations set out
in this Plan, the number of shares of Stock to be covered by any Option to be
granted to an Employee or Consultant of the Company or any of its Affiliates
shall be as determined by the Committee.
4.2 DEDICATED SHARES. The total number of shares of Stock with respect
to which Options may be granted under the Plan shall be 750,000 shares of Stock.
The shares may be treasury shares or authorized but unissued shares. The total
number of shares of Stock with respect to which Incentive Options may be granted
under the Plan shall be 750,000 shares. The maximum number of shares subject to
Options which may be issued to any Optionee under the Plan during any period of
three consecutive years is 250,000 shares. The number of shares stated in this
Section 4.2 shall be subject to adjustment in accordance with the provisions of
Section 4.5.
In the event that any outstanding Option shall expire or terminate for
any reason or any Option is surrendered, the shares of Stock allocable to the
unexercised portion of that Option may again be subject to an Option under the
Plan.
4.3 NON-TRANSFERABILITY. Options shall not be transferable by the
Optionee otherwise than (i) by will or under the laws of descent and
distribution or (ii) pursuant to a qualified domestic relations order as defined
in the Code, in Title I of the Employee Retirement Income Security Act, or in
the rules and regulations as may be in effect from time to time thereunder, and
shall be exercisable, during the Optionee's lifetime, only by him.
4.4 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Committee has received evidence
satisfactory to it to the effect that the holder of that Option will not
transfer the Stock except in accordance with applicable law, including receipt
of an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer complies with applicable law. The determination by the
Committee on this matter shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any Stock covered by this
Plan pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable on exercise of an Option is not
registered, the Company may imprint on the certificate evidencing the Stock any
legend that counsel for the Company considers necessary or advisable to comply
with applicable law. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of an Option and the issuance
of shares thereunder, to comply with any law or regulation of any governmental
authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any adjustments,
A-4
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or its rights, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation for it in money, services or property then (a) the number, class,
and per share price of shares of Stock subject to outstanding Options under this
Plan shall be appropriately adjusted in such a manner as to entitle an Optionee
to receive upon exercise of an Option, for the same aggregate cash
consideration, the equivalent total number and class of shares he would have
received had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares of Stock then
reserved to be issued under the Plan shall be adjusted by substituting for the
total number and class of shares of Stock then reserved, that number and class
of shares of Stock that would have been received by the owner of an equal number
of outstanding shares of such class of Stock as the result of the event
requiring the adjustment.
If the Company is merged or consolidated with another corporation and
the Company is not the surviving corporation, or if the Company is liquidated or
sells or otherwise disposes of substantially all its assets while unexercised
Options remain outstanding under this Plan, (a) subject to the provisions of
clause (c) below, after the effective date of the merger, consolidation,
liquidation, sale or other disposition, as the case may be, each holder of an
outstanding Option shall be entitled, upon exercise of the Option, to receive,
in lieu of shares of Stock, the number and class or classes of shares of stock
or other securities or property to which the holder would have been entitled if,
immediately prior to the merger, consolidation, liquidation, sale or other
disposition, the holder had been the holder of record of a number of shares of
Stock equal to the number of shares as to which the Option shall be so
exercised; (b) the Committee shall waive any limitations set out in or imposed
under this Plan so that all Options, from and after a date prior to the
effective date of the merger, consolidation, liquidation, sale or other
disposition, as the case may be, specified by the Committee, shall be
exercisable in full; and (c) all outstanding Options may be canceled by the
Committee as of the effective date of any merger, consolidation, liquidation,
sale or other disposition, if (i) notice of cancellation shall be given to each
holder of an Option and (ii) each holder of an Option shall have the right to
exercise that Option in full (without regard to any limitations set out in or
imposed under this Plan or the Option Agreement granting that Option) during a
period set by the Committee preceding the effective date of the merger,
consolidation, liquidation, sale or other disposition and, if in the event all
outstanding Options may not be exercised in full under applicable securities
laws without registration of the shares of Stock issuable on exercise of the
Options, the Committee may limit the exercise of the Options to the number of
shares of Stock, if any, as may be issued without registration. The method of
choosing which Options may be exercised, and the number of shares of Stock for
which Options may be exercised, shall be solely within the discretion of the
Committee.
The issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe for them, or upon conversion of shares or obligations of
the Company convertible into shares or other securities, shall not affect, and
no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Options.
4.6 CHANGES OF CONTROL. In the event of a Change of Control, the
Committee may, in its discretion, at the time an Option is granted or any time
thereafter: (i) provide for the acceleration of any time period relating to the
exercise of the Option, (ii) provide for the purchase of the Option upon the
Optionee's request for an amount of cash or other property that could have been
received upon the exercise of the Option had the Option been then currently
exercisable, (iii) adjust the terms of the Option in a manner determined by the
Committee to reflect the Change of Control, (iv) cause the Option to be assumed,
or new rights substituted therefore, by another entity, or (v) make such other
provisions as the Committee may consider equitable and in the best interest of
the Company.
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ARTICLE V
OPTIONS
5.1 TYPE OF OPTION. The Committee shall specify whether a given Option
shall constitute an Incentive Option or a Nonqualified Option.
5.2 OPTION PRICE. The price at which Stock may be purchased under an
Option shall not be less than the greater of: (a) 100% of the Fair Market Value
of the shares of Stock on the date the Option is granted or (b) the aggregate
par value of the shares of Stock on the date the Option is granted. In the case
of any 10% Stockholder, the price at which shares of Stock may be purchased
under an Incentive Option shall not be less than 110% of the Fair Market Value
of the Stock on the date the Incentive Option is granted.
5.3 DURATION OF OPTIONS; TERMINATION. No Option shall be exercisable
after the expiration of 10 years from the date the Option is granted. In the
case of a 10% Stockholder, no Incentive Option shall be exercisable after the
expiration of five years from the date the Incentive Option is granted. Unless
otherwise provided in the Option Agreement or by the Committee:
(a) If the employment or engagement of an Optionee by the
Company shall terminate for any reason other than Cause, Disability, the
voluntary retirement of the Optionee in accordance with the Company's
retirement policy as then in effect or the death of the Optionee: (i)
Options granted to such Optionee, to the extent that they were exercisable
at the time of such termination, shall remain exercisable until the
expiration of 90 days after such termination, on which date they shall
expire, and (ii) Options granted to such Optionee, to the extent that they
were not exercisable at the time of such termination, shall expire at the
close of business on the date of such termination; provided, however, that
no Option shall be exercisable after the expiration of its term.
(b) If the employment or engagement of an Optionee by the
Company shall terminate on account of the Disability, the voluntary
retirement of the Optionee in accordance with the Company's retirement
policy as then in effect or the death of the Optionee: (i) Options granted
to such Optionee, to the extent that they were exercisable at the time of
such termination, shall remain exercisable until the expiration of one
year after such termination, on which date they shall expire, and (ii)
Options granted to such Optionee, to the extent that they were not
exercisable at the time of such termination, shall expire at the close of
business on the date of such termination; provided, however, that no
Option shall be exercisable after the expiration of its term.
(c) In the event of the termination of an Optionee's
employment or engagement for Cause, all outstanding Options granted to
such Optionee shall expire at the commencement of business on the date of
such termination.
5.4 AMOUNT EXERCISABLE. Each Option may be exercised from time to time,
in whole or in part, in the manner and subject to the conditions the Committee,
in its sole discretion, may provide in the Option Agreement, as long as the
Option is valid and outstanding. To the extent that the aggregate Fair Market
Value (determined as of the time an Incentive Option is granted) of the Stock
with respect to which Incentive Options first become exercisable by the Optionee
during any calendar year (under this Plan and any other incentive stock option
plan(s) of the Company or any Affiliate) exceeds $100,000, the Incentive Options
shall be treated as Nonqualified Options. In making this determination,
Incentive Options shall be taken into account in the order in which they were
granted.
5.5 EXERCISE OF OPTIONS. Each Option shall be exercised by the delivery
of written notice to the Company, to the attention of its Secretary, setting
forth the number of shares of Stock with respect to which the Option is to be
exercised, together with: (a) cash, wire transfer, certified check, bank draft,
or postal or express money order payable to the order of the Company for an
amount equal to the option price of the shares, or (b) if approved by the
Committee, Stock at its Fair Market Value on the date of exercise, and/or any
other form of payment which is acceptable to the Committee, and specifying the
address to which the certificates for the shares are to be mailed. Subject to
Sections 4.4 and 8.3, as promptly as practicable after receipt of written
notification and payment, the Company shall deliver to the Optionee certificates
for the number of shares with respect to which the Option has been exercised,
issued in the
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Optionee's name. If shares of Stock are used in payment of the exercise price,
the aggregate Fair Market Value of the shares of Stock tendered must be equal to
or less than the aggregate exercise price of the shares being purchased upon
exercise of the Option, and any difference must be paid by cash, certified
check, bank draft, or postal or express money order payable to the Company.
Delivery of the shares shall be deemed effected for all purposes when a stock
transfer agent of the Company shall have deposited the certificates in the
United States mail, addressed to the Optionee, at the address specified by the
Optionee.
Whenever an Option is exercised by exchanging shares of Stock owned by
the Optionee, the Optionee shall deliver to the Company certificates registered
in the name of the Optionee representing a number of shares of Stock legally and
beneficially owned by the Optionee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates (with signature guaranteed
by a commercial bank or trust company or by a brokerage firm having a membership
on a registered national stock exchange). The delivery of certificates upon the
exercise of Options is subject to the condition that the person exercising the
Option provide the Company with the information the Company might reasonably
request pertaining to exercise, sale or other disposition of an Option.
5.6 SUBSTITUTION OPTIONS. Options may be granted under this Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in this Plan (including, without limitation, the terms and conditions with
respect to the price at which Stock may be purchased under an Option) to the
extent the Committee, at the time of grant, may deem appropriate to conform, in
whole or in part, to the provisions of the stock options in substitution for
which they are granted.
5.7 NO RIGHTS AS STOCKHOLDER. No Optionee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
ARTICLE VI
ADMINISTRATION
This Plan shall be administered by the Committee. All questions of
interpretation and application of this Plan and Options shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority vote at a meeting properly called and held. This Plan shall be
administered in such a manner as to permit the Options granted under it which
are designated to be Incentive Options to qualify as Incentive Options. In
carrying out its authority under this Plan, the Committee shall have full and
final authority and discretion, including but not limited to the following
rights, powers and authorities, to:
(a) determine the persons to whom and the time or times at which Options
will be made,
(b) determine the number of shares and the purchase price of Stock covered
in each Option, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of each Option, which
need not be identical,
(d) accelerate the time at which any outstanding Option may be exercised,
(e) define the effect, if any, on an Option of the death, disability,
retirement, or termination of employment of the Optionee,
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(f) prescribe, amend and rescind rules and regulations relating to
administration of this Plan, and
(g) make all other determinations and take all other actions deemed
necessary, appropriate, or advisable for the proper administration of this Plan.
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of this Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend, terminate or suspend
this Plan at any time, in its sole and absolute discretion; provided, however,
that to the extent required to maintain the status of any Incentive Option under
the Code, no amendment that would (a) change the aggregate number of shares of
Stock which may be issued under Incentive Options, (b) change the class of
employees eligible to receive Incentive Options, or (c) decrease the exercise
price for Incentive Options below the Fair Market Value of the Stock at the time
it is granted, shall be made without the approval of the Company's stockholders.
Subject to the preceding sentence, the Board shall have the power to make any
changes in this Plan and in the regulations and administrative provisions under
it or in any outstanding Incentive Option as in the opinion of counsel for the
Company may be necessary or appropriate from time to time to enable any
Incentive Option granted under this Plan to continue to qualify as an incentive
stock option or such other stock option as may be defined under the Code so as
to receive preferential Federal income tax treatment.
ARTICLE VIII
MISCELLANEOUS
8.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside
nor shall a trust fund of any kind be established to secure the rights of any
Optionee under this Plan. All Optionees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under this Plan.
8.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Optionee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option has been granted to him.
8.3 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Optionee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option. In the alternative, the Company may require the Optionee
(or other person exercising the Option) to pay the sum directly to the employer
corporation. If the Optionee (or other person exercising the Option) is required
to pay the sum directly, payment in cash or by check of such sums for taxes
shall be delivered within ten days after the date of exercise or lapse of
restrictions. The Company shall have no obligation upon exercise of any Option
until payment has been received, unless withholding (or offset against a cash
payment) as of or prior to the date of exercise is sufficient to cover all sums
due with respect to that exercise. The Company and its Affiliates shall not be
obligated to advise an Optionee of the existence of the tax or the amount which
the employer corporation will be required to withhold.
8.4 WRITTEN AGREEMENT. Each Option shall be embodied in a written
Option Agreement which shall be subject to the terms and conditions of this Plan
and shall be signed by the Optionee and by a member of the Committee and an
officer of the Company on behalf of the Committee and the Company. The Option
Agreement may contain any other provisions that the Committee in its discretion
shall deem advisable which are not inconsistent with the terms of this Plan.
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8.5 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
respect to administration of this Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors against, and each
member of the Committee and the Board of Directors shall be entitled without
further action his part to indemnity from the Company for, all expenses
(including attorneys' fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of the
Committee and/or the Board of Directors at the time of incurring the
expenses--including, without limitation, matters as to which he shall be finally
adjudged in any action, suit or proceeding to have been found to have been
negligent in the performance of his duty as a member of the Committee or of the
Board of Directors. However, this indemnity shall not include any expenses
incurred by any member of the Committee and/or the Board of Directors in respect
of matters as to which he shall be finally adjudged in any action, suit or
proceeding to have been guilty of gross negligence or willful misconduct in the
performance of his duty as a member of the Committee or the Board of Directors.
In addition, no right of indemnification under this Plan shall be available to
or enforceable by any member of the Committee or the Board of Directors unless,
within 60 days after institution of any action, suit or proceeding, he shall
have offered the Company, in writing, the opportunity to handle and defend same
at its own expense. This right of indemnification shall inure to the benefit of
the heirs, executors or administrators of each member of the Committee and the
Board of Directors and shall be in addition to all other rights to which a
member of the Committee and the Board of Directors may be entitled as a matter
of law, contract, or otherwise.
8.6 GENDER. If the context requires, words of one gender when used in
this Plan shall include the others and words used in the singular or plural
shall include the other.
8.7 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.
8.8 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall this Plan preclude the
Company from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.
8.9 OTHER OPTIONS. The grant of an Option shall not confer upon an
Optionee the right to receive any future or other Options under this Plan,
whether or not Options may be granted to similarly situated Optionees, or the
right to receive future Options upon the same terms or conditions as previously
granted.
8.10 ARBITRATION OF DISPUTES. Any controversy arising out of or
relating to the Plan or an Option Agreement shall be resolved by arbitration
conducted pursuant to the arbitration rules of the American Arbitration
Association. The arbitration shall be final and binding on the parties.
8.11 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Delaware.
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