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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 Section 240.14a-11(c) or Section
240.14a-12
NEOTHERAPEUTICS, INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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April 26, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of NeoTherapeutics, Inc. (the "Company") to be held on Monday, June
14, 1999, at the Company's corporate headquarters located at 157 Technology
Drive, Irvine, California, 92618, beginning at 3:30 p.m., local time.
The business to be conducted at the Annual Meeting includes the
following: (1) election of four Class II directors; (2) approval of the issuance
of common stock pursuant to conversion rights under a preferred stock financing
transaction; (3) approval of the issuance of common stock pursuant to a private
equity line of credit financing transaction; (4) approval of an increase in the
total number of shares issuable under the 1997 Stock Incentive Plan by 750,000;
and (5) ratification of the selection of independent public accountants, as well
as consideration of any other matters which may properly come before the Annual
Meeting and any adjournment thereof. All of these matters are described in
detail in the accompanying Notice of Annual Meeting and Proxy Statement. In
addition, we will be pleased to report on the affairs of the Company and a
discussion period will be provided for questions and comments of general
interest to stockholders.
It is important that your shares be represented; therefore, even if you
presently plan to attend the Annual Meeting, please complete, sign and date and
promptly return the enclosed proxy card in the envelope provided. If you do
attend the Annual Meeting and wish to vote in person, you may withdraw your
proxy at that time.
I look forward to seeing you at the Annual Meeting.
Very truly yours,
/s/ ALVIN J. GLASKY, Ph.D.
Alvin J. Glasky, Ph.D.
President, Chief Executive Officer and
Chairman of the Board
157 Technology Drive, Irvine, California 92618 Tel (949) 788-6700
Fax (949) 788-6706
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NEOTHERAPEUTICS, INC.
157 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
-----------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 1999
----------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of NeoTherapeutics, Inc. (the "Company") will be held at the
principal business office of the Company, 157 Technology Drive, Irvine,
California 92618, on Monday, June 14, 1999 at 3:30 p.m., local time, for the
following purposes:
(1) To elect four Class II directors to serve for a two-year term
expiring at the Annual Meeting of Stockholders to be held in 2001
or until their successors have been duly elected and qualified;
(2) To approve the issuance of common stock pursuant to conversion
rights under a preferred stock financing transaction;
(3) To approve the issuance of common stock pursuant to a private
equity line of credit agreement;
(4) To approve an increase in the number of shares of common stock
issuable under the 1997 Stock Incentive Plan by 750,000;
(5) To ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for the current fiscal year; and
(6) To transact any other business as may properly come before the
Annual Meeting and any adjournment thereof.
Stockholders of record at the close of business on April 16, 1999, are
entitled to notice of, and to vote at, the Annual Meeting and any adjournment
thereof. All stockholders are cordially invited to attend the Annual Meeting in
person. A list of such stockholders will be available for examination by any
stockholder at the Annual Meeting and, for any purpose germane to the Annual
Meeting, at the principal business office of the Company, 157 Technology Drive,
Irvine, California, for a period of ten days prior to the Annual Meeting.
By Order of the Board of Directors
/s/ SAMUEL GULKO
Samuel Gulko
Secretary
Irvine, California
April 26, 1999
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD, AND RETURN IT IN THE
PREADDRESSED ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED
STATES.
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NEOTHERAPEUTICS
157 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
----------------------
PROXY STATEMENT
----------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 1999
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of NeoTherapeutics, Inc. (the
"Company") for use at the Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held on Monday, June 14, 1999, at 3:30 p.m., local time.
The Annual Meeting will be held at 157 Technology Drive, Irvine, California
92618, the principal business office of the Company. This Proxy Statement and
the accompanying proxy are first being mailed on or about April 26, 1999.
REVOCABILITY OF PROXIES
An executed proxy may be revoked at any time before its exercise by
delivering to the Secretary of the Company a written notice of revocation or a
duly executed proxy bearing a later date. Prior to the date of the Annual
Meeting, any such notice or subsequent proxy must be delivered to the Secretary
of the Company at 157 Technology Drive, Irvine, California 92618, the principal
executive office of the Company. On the date of the Annual Meeting, such notice
or subsequent proxy should be delivered in person at the Annual Meeting prior to
the time of the vote. Accordingly, the execution of the enclosed proxy will not
affect a stockholder's right to vote in person should such stockholder find it
convenient to attend the Annual Meeting and desire to vote in person, so long as
the stockholder has revoked his or her proxy prior to its exercise in accordance
with these instructions.
VOTING AND SOLICITATION
On April 16, 1999, the record date with respect to this solicitation,
6,256,673 shares of the Company's common stock ("Common Stock") were
outstanding. No other securities are entitled to vote at the Annual Meeting.
Only stockholders of record on such date are entitled to notice of and to vote
at the Annual Meeting and at any adjournment thereof. Each stockholder of record
is entitled to one vote for each share held as of the record date on all matters
to come before the Annual Meeting and at any adjournment thereof.
QUORUM. The holders of a majority of the outstanding shares of the
Company's Common Stock, present in person or by proxy and entitled to vote, will
constitute a quorum at the Annual Meeting. Proxies marked "withheld" as to any
director nominee or "abstain" as to a particular proposal and broker non-votes
are counted by the Company for purposes of determining the presence or absence
of a quorum at the Annual Meeting for the transaction of business.
VOTE REQUIRED. The director nominees receiving the highest number of
affirmative votes of the shares present or represented by proxy and entitled to
vote, up to the number of directors to be elected at the Annual Meeting (four
Class II directors), shall be elected as directors. Accordingly, abstentions and
broker non-votes will have no effect in determining which directors receive the
highest number of votes.
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Ratification of the selection of Arthur Andersen LLP as the Company's
independent public accountants, and approval of any other matter that properly
comes before the Annual Meeting must be accomplished by the affirmative votes of
a majority of the shares present or represented and entitled to be voted at the
Annual Meeting. The vote required for approval and the effect of proxies marked
"abstain" and broker non-votes on Proposals 2, 3 and 4 are discussed under each
respective Proposal.
The shares represented by all valid proxies received will be voted in
accordance with the instructions specified therein. Unless otherwise directed in
the proxy, the persons named therein will vote FOR the election of each of the
Class II director nominees and FOR each of the other proposals. As to any other
business that may properly come before the Annual Meeting, they will vote in
accordance with their best judgment. The Company presently does not know of any
other such business.
SOLICITATION. Proxies for use at the Annual Meeting are being solicited
by the Board of Directors of the Company. Proxies will be solicited principally
by mail. If desirable, to ensure a quorum at the Annual Meeting, officers,
directors, agents and employees of the Company may contact stockholders, banks,
brokerage houses and others, by telephone, facsimile or in person to request
that proxies be furnished. All expenses incurred in connection with this
solicitation will be borne by the Company. These costs include reimbursements to
banks, brokerage houses and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding proxy materials to beneficial owners of the
Company's Common Stock. However, officers, directors and employees will not
receive additional compensation for these services. The Company has engaged
Georgeson & Company Inc. ("Georgeson") to solicit proxies and distribute
materials to banks, brokerage houses and other custodians and nominees. The
Company will pay Georgeson a fee of approximately $4,500.00 plus expenses for
these services.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of nine
directors, divided into two classes. Each Class is elected in alternate years
and serves a term of two years. The Class I directors, whose term expires at the
Annual Meeting of Stockholders in 2000, are Samuel Gulko, Frank M. Meeks, Eric
L. Nelson, Ph.D., Stephen Runnels and Paul H. Silverman, Ph.D., D.Sc. The Class
II director nominees, whose term expires at the Annual Meeting of Stockholders
in 2001, are Alvin J. Glasky, Ph.D., Mark J. Glasky, Carol O'Cleireacain, Ph.D.
and Joseph Rubinfeld, Ph.D. Each director elected will serve the term for which
he or she was nominated and until the election and qualification of his or her
successor or until his or her earlier resignation or removal.
Unless otherwise specified, the enclosed proxy will be voted in favor of
the Class II director nominees named below. If any nominee should become
unavailable to serve as a Director, the persons named in the enclosed proxy will
be authorized to vote for such other person or persons as the Board of Directors
may designate. All nominees have consented to be named and have indicated their
intent to serve if elected. The Board of Directors has no reason to believe that
any of the nominees will be unable to serve.
The following table provides information regarding the nominees and the
other continuing members of the Board of Directors, their ages, the year in
which each first became a director of the Company, their principal occupations
or employment during the past five years and any family relationship with any
other director or executive officer of the Company:
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CLASS II NOMINEES - TERM EXPIRING IN 2001
BUSINESS EXPERIENCE DURING LAST
NAME AND AGE FIVE YEARS AND OTHER DIRECTORSHIPS
Alvin J. Glasky, Ph.D. (65) Alvin J. Glasky, Ph.D., has been Chief
Executive Officer, President and a
director of Advanced ImmunoTherapeutics,
Inc. ("AIT") since its inception in June
1987, and has served as the Chairman of
the Board, Chief Executive Officer,
President and a director of the Company
since July 1989, when AIT became a wholly
owned subsidiary of the Company. From
March 1986 to January 1987, Dr. Glasky
was Executive Director of the American
Social Health Association, a non-profit
organization. From 1968 until March 1986,
Dr. Glasky was the President and Chairman
of the Board of Newport Pharmaceuticals
International, Inc., a pharmaceutical
company that developed, manufactured and
marketed prescription medicines. From
1966 to 1968, Dr. Glasky served as
Director of Research for ICN
Pharmaceuticals, Inc. and as Director of
the ICN-Nucleic Acid Research Institute
in Irvine, California. During that period
he was also an assistant professor in the
Pharmacology Department of the Chicago
Medical School. Dr. Glasky currently is a
Regent's Professor at the University of
California, Irvine. Dr. Glasky received a
B.S. degree in Pharmacy from the
University of Illinois College of
Pharmacy in 1954 and a Ph.D. degree in
Biochemistry from the University of
Illinois Graduate School in 1958. Dr.
Glasky was also a Post-Doctoral Fellow,
National Science Foundation, in Sweden.
Mark J. Glasky (36) Mark J. Glasky has been a director of the
Company since August 1994. Since 1982,
Mr. Glasky has been employed by Bank of
America NT&SA in various corporate
lending positions and currently serves as
its Credit Products Executive for
Southern California Commercial Banking.
Mr. Glasky obtained a B.S. degree in
International Finance from University of
Southern California in 1983 and an M.B.A.
from the University of Texas at Austin in
1987. Mark J. Glasky is the son of Dr.
Alvin J. Glasky.
Carol O'Cleireacain, Ph.D. (52) Carol O'Cleireacain, Ph.D., has been a
director of the Company since September
1996. Dr. O'Cleireacain has served as an
independent economic and management
consultant in New York City since 1994.
Since 1998, Dr. O'Cleireacain has served
as Senior Fellow (non-resident) at the
Brookings Institution in Washington D.C.,
where previously, from March 1996 until
June 1997, as a Visiting Fellow, Economic
Studies, she authored The Orphaned
Capital: Adopting the Right Revenues for
the District of Columbia. Since 1998, Dr.
O'Cleireacain has also served as an
adjunct Professor of Urban Studies at
Barnard College, Columbia University.
During 1998, Dr. O'Cleireacain served as
a member of the President's Commission to
Study Capital Budgeting, and during 1997,
Dr. O'Cleireacain served as a member of
the National Civil Aviation Review
Commission. Since May 1996, Dr.
O'Cleireacain has served as a director
and member of the Executive Committee of
Trilliumn Asset Management (formerly
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known as Franklin Research and
Development Corp.), an employee-owned
investment company in Boston. From April
1994 through April 1996, Dr.
O'Cleireacain served as the first woman
nominee of the United Steelworkers of
America and the first woman director of
ACME Metals Inc. Dr. O'Cleireacain served
as the Director of the Mayor's Office of
Management and Budget of the City of New
York from August 1993 until December
1993. From February 1990 until August
1993, Dr. O'Cleireacain was the
Commissioner of the New York City
Department of Finance. Dr. O'Cleireacain
received a B.A., with distinction, in
Economics from the University of Michigan
in 1968, an M.A. in Economics from the
University of Michigan in 1970 and a
Ph.D. in Economics from the London School
of Economics in 1977.
Joseph Rubinfeld, Ph.D. (66) Joseph Rubinfeld, Ph.D., has been a
director of the Company since June 1998.
Dr. Rubinfeld is the co-founder of
publicly held SuperGen, Inc., a
pharmaceutical company focused on drugs
for life-threatening diseases,
particularly cancer, and has served as
the Chief Executive Officer, President
and a director since its inception in
March 1991 and was Chief Scientific
Officer from inception until September
1997. Since May 1996, Dr. Rubinfeld has
served as a director of Antivirals, Inc.,
a biopharmaceutical company. Dr.
Rubinfeld was one of the four initial
founders of Amgen, Inc., a biotechnology
company, in 1980 and served as Vice
President and Chief of Operations until
1983. From 1987 to 1990, Dr. Rubinfeld
was a Senior Director at Cetus
Corporation, a biotechnology company.
From 1968 to 1980, Dr. Rubinfeld was
employed at Bristol-Myers Company
International Division ("Bristol-Myers")
in a variety of positions, most recently
as Vice President and Director of
Research and Development. While at
Bristol-Myers, Dr. Rubinfeld was
instrumental in licensing the original
anticancer line of products for
Bristol-Myers, including Mitomycin and
Bleomycin. Prior to that time, Dr.
Rubinfeld was a research scientist with
several pharmaceutical and consumer
product companies including
Schering-Plough Corporate and
Colgate-Palmolive Co.
CONTINUING CLASS I DIRECTORS - TERM EXPIRING IN 2000
BUSINESS EXPERIENCE DURING LAST
NAME AND AGE FIVE YEARS AND OTHER DIRECTORSHIPS
Samuel Gulko (67) Samuel Gulko has served as the Chief
Financial Officer of the Company since
September 1996 and as Secretary,
Treasurer and a director since June 1998.
From 1968 until March 1987, Mr. Gulko
served as a partner in the audit practice
of Ernst & Young, LLP, Certified Public
Accountants. From April 1987 to the
present, Mr. Gulko has been self-employed
as a Certified Public Accountant and
business consultant, as well as the
part-time Chief Financial Officer of
several companies. Mr. Gulko obtained his
B.S. degree in accounting from the
University of Southern California in
1958.
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Frank M. Meeks (54) Frank M. Meeks has been a director of the
Company since July 1989. Since September
1992, Mr. Meeks has been pursuing
personal investments in real estate,
property management and oil and gas. Mr.
Meeks was employed by Environmental
Developers, Inc., a real estate
development and construction company,
from June 1979 until March 1993, first as
Vice President and finally as Financial
Vice President. Mr. Meeks obtained a B.S.
degree in Business Administration from
Wittenberg University in 1966, and a
M.B.A. degree from Emory University in
1967. Mr. Meeks is a non-practicing
certified public accountant and a
licensed real estate broker.
Eric L. Nelson, Ph.D. (74) Eric L. Nelson, Ph.D., has been a
director of the Company since June 1998
and a member of the Company's Scientific
Advisory Board since 1987. Dr. Nelson has
been a pharmaceutical research consultant
since 1986. Dr. Nelson was a founder, and
served as Chairman from 1972 until 1986,
of Nelson Research & Development
Corporation, a publicly held corporation
engaged in research and development of
drug receptor technology applied to the
development of pharmaceutical products
and novel drug delivery systems. Prior to
1972, Dr. Nelson spent eleven years at
Allergan Pharmaceuticals, Inc., a
developer of eye care products, where as
Vice President of Research he was
responsible for establishing Allergan's
entire research organization. Dr. Nelson
received his doctorate degree in
Microbiology from UCLA in 1951 and has
authored numerous publications. He is the
inventor on various patents in the areas
of microbiology, immunology, molecular
biology and pharmacology.
Stephen Runnels (50) Stephen Runnels joined the Company as
Executive Vice President in April 1997,
and has been a director of the Company
since June 1998. From January 1992 to
April 1997, Mr. Runnels held the position
of Vice President, Marketing and Business
Development for Sigma-Aldrich, Inc., a
Fortune 500 manufacturer of biochemicals,
pharmaceuticals, and biotechnology
products. From November 1989 until
January 1992, Mr. Runnels held the
position of Vice President - Sales and
Marketing for Irvine Scientific, a
provider of tissue culture supplies and
reagents for biomedical research. From
January 1978 until November 1989, Mr.
Runnels held the position of Vice
President, International Operations for
Gamma Biologicals, a manufacturer of
immunological reagents. Mr. Runnels is
certified by the American Society of
Clinical Pathologists as a specialist in
Immunohematology. From 1975 to 1978, Mr.
Runnels was an instructor of Clinical
Immunology at Arizona State University.
Mr. Runnels obtained his B.S. degree in
Cell Biology from the University of
Arizona.
Paul H. Silverman, Ph.D., D.Sc. (74) Paul H. Silverman, Ph.D., D.Sc., has been
a director of the Company and a member of
the Company's Scientific Advisory Board
since September 1996. Dr. Silverman has
served as a Director for the Western
Center of the American Academy of Arts
and Sciences located on the University of
California, Irvine campus since March
1997. Since March 1993, Dr. Silverman has
also been an Adjunct Professor in the
Department of Medicine at the University
of California, Irvine. From January 1994
until July 1996, Dr. Silverman served as
an Associate Chancellor for the
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Center for Health Sciences at the
University of California, Irvine. From
August 1992 until January 1994, Dr.
Silverman served as the Director of
Corporate and Government Affairs at the
Beckman Laser Institute and Medical
Clinic in Irvine, California. From
November 1990 until December 1993, Dr.
Silverman served as Director of
Scientific Affairs at Beckman
Instruments, Inc. Prior to 1990, Dr.
Silverman served as the Director of the
Systemwide Biotechnology Research and
Education Program for the University of
California; the Director of the Donner
Laboratory and an Associate Director of
the Lawrence Berkeley Laboratory at the
University of California, Berkeley; as
the President of the University of Maine
at Orono; as the President of The
Research Foundation of the State
University of New York, and as the head
of the Department of Immunoparasitology
at Glaxo, Ltd. Dr. Silverman received his
Ph.D. in Parasitology and Epidemiology
and his Doctor of Science from the
University of Liverpool, England.
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended December 31, 1998, the Board of the
Directors of the Company met eight times. The Board of Directors has two
committees: the Audit Committee and the Compensation Committee. No director
attended fewer than 75% of the aggregate of all meetings of the Board of
Directors and the committees of the Board, if any, on which such director served
and which were held during the period of time that he or she served on the Board
or such committee. The following sets forth information concerning each
committee:
The Audit Committee was comprised of Dr. Carol O'Cleireacain (who serves
as Chairman), Mr. Mark J. Glasky (who served on the Committee until March 19,
1999) and Mr. Frank M. Meeks. The Audit Committee recommends engagement of the
Company's independent public accountants and is primarily responsible for
approving the services performed by the Company's independent accountants and
for reviewing and evaluating the Company's accounting principles and its system
of internal controls. The Audit Committee held two meetings during 1998.
The Compensation Committee was comprised of Mr. Frank M. Meeks (who
served on the Committee and acted as Chairman until June 16, 1998), Dr. Eric L.
Nelson (who has served as Chairman since June 16, 1998), Dr. Carol
O'Cleireacain, Dr. Paul H. Silverman and Dr. Joseph Rubinfeld (who has served on
the Committee since March 19, 1999). The Compensation Committee reviews and
recommends the salaries and bonuses of officers and certain key employees of the
Company, establishes compensation and incentive plans, authorizes and approves
the granting of stock options and restricted stock in accordance with the
Company's stock option and incentive plans, and determines other fringe
benefits. The Compensation Committee held two meetings during 1998.
COMPENSATION OF DIRECTORS
Each of the Company's non-employee directors receives $1,000 for each
Board of Directors meeting and $500 for each committee meeting attended (with
the Chairperson of the committee receiving $1,000). The directors are also
reimbursed for certain expenses incurred in connection with attendance at Board
meetings. In February 1998, the Company granted to each non-employee director an
option to purchase 10,000 shares of Common Stock at $8.375 per share. In August
1998, the Company granted to each non-employee director an option to purchase
10,000 shares of Common Stock at $5.625 per share.
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BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of April 17, 1999,
regarding the beneficial ownership of the Company's Common Stock of: (i) each
person known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each director and nominee for director of the
Company; (iii) the executive officers named in the Summary Compensation Table
(see "Executive Compensation"); and (iv) all directors and executive officers of
the Company as a group. Except as otherwise specified, the named beneficial
owner has the sole voting and investment power over the shares listed.
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME OF BENEFICIAL OWNER (1) OWNED (1) OUTSTANDING
- --------------------------- --------- -----------
Alvin J. Glasky, Ph.D. (2)....................... 1,443,872 22.4%
157 Technology Drive
Irvine, CA 92618
Mark J. Glasky (3)............................... 45,979 *
Michelle S. Glasky, Ph.D. (4)(5)................. 35,980 *
Samuel Gulko (6)................................. 37,900 *
Frank M. Meeks (7)............................... 57,960 *
Eric L. Nelson, Ph.D. (8)........................ 54,000 *
Carol O'Cleireacain, Ph.D. (9)................... 37,500 *
Joseph Rubinfeld, Ph.D. (10)..................... 7,500 *
Stephen Runnels (11)............................. 49,500 *
Paul H. Silverman, Ph.D., D.Sc. (9).............. 37,500 *
All Executive Officers and Directors
as a group (ten persons) (12).................. 1,807,691 27.1%
- ----------
* less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options and warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of April 17, 1999, are deemed
beneficially owned and outstanding for computing the percentage of the
person holding such securities, but are not considered outstanding for
computing the percentage of any other person.
(2) Includes 88,173 shares subject to outstanding warrants, 4,000 shares
held for the benefit of Dr. Glasky by the NeoTherapeutics, Inc. 401(k)
Plan and 95,000 shares subject to options held by Dr. Glasky which are
currently exercisable or exercisable within 60 days of April 17, 1999.
Also includes 47,243 shares owned by Dr. Glasky's wife, Rosalie H.
Glasky, and 16,500 shares subject to options held by Rosalie H. Glasky.
Does not include 45,979 shares beneficially owned by Mark J. Glasky and
35,980 shares beneficially owned by Michelle S. Glasky, Ph.D., Dr.
Glasky's adult children, for which Dr. Glasky disclaims beneficial
ownership.
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(3) Includes 27,500 shares subject to options held by Mr. Glasky which are
currently exercisable or exercisable within 60 days of April 17, 1999,
and 1,000 shares subject to currently exercisable warrants.
(4) Includes 28,500 shares subject to options held by Dr. Michelle S. Glasky
which are currently exercisable or exercisable within 60 days of April
17, 1999, and 500 shares subject to currently exercisable warrants.
(5) Michelle S. Glasky, Ph.D. is not one of the Named Executive Officers but
serves as the Company's Vice President, Scientific Affairs and is the
adult daughter of Dr.
Alvin J. Glasky.
(6) Includes 24,500 shares subject to options held by Mr. Gulko which are
currently exercisable or exercisable within 60 days of April 17, 1999,
1,050 shares subject to currently exercisable warrants and 1,300 shares
owned by The Samuel Gulko CPA Keogh Plan, of which Mr. Gulko is trustee.
(7) Includes 27,500 shares subject to options held by Mr. Meeks which are
currently exercisable or exercisable within 60 days of April 17, 1999.
Does not include 460 shares beneficially owned by Mr. Meeks' wife, for
which Mr. Meeks disclaims beneficial ownership.
(8) Includes 7,500 shares subject to options held by Dr. Nelson which are
currently exercisable or exercisable within 60 days of April 17, 1999
and 36,500 shares held in the Eric L. and Lila D. Nelson Family Trust.
Does not include 5,000 shares beneficially owned by Dr. Nelson's wife,
for which Dr. Nelson disclaims beneficial ownership.
(9) Includes 27,500 shares subject to options held by each of Drs.
O'Cleireacain and Silverman which are currently exercisable or
exercisable within 60 days of April 17, 1999.
(10) Includes 7,500 shares subject to options held by Dr. Rubinfeld which are
currently exercisable or exercisable within 60 days of April 17, 1999.
(11) Includes 37,500 shares subject to options held by Mr. Runnels which are
currently exercisable or exercisable within 60 days of April 17, 1999.
(12) Includes 90,723 shares issuable upon the exercise of outstanding
warrants, and 327,000 shares subject to options which are currently
exercisable or exercisable within 60 days of April 17, 1999.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation of the Company's Chief Executive Officer and the other most highly
compensated executive officers of the Company whose total salary and bonuses for
services rendered to the Company and its subsidiaries in all capacities during
the fiscal year ended December 31, 1998 exceeded $100,000 (the "Named Executive
Officers").
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SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
----------
ANNUAL COMPENSATION SECURITIES
----------------------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS
- --------------------------- ---- ------ ----- ----- -------
Alvin J. Glasky, Ph.D. 1998 $ 199,998 $ -- $ -- 65,000
Chairman, Chief Executive Officer 1997 199,992(1) -- -- --
and President 1996 165,398(2) -- -- 75,000
Stephen Runnels(3) 1998 165,940 -- -- 25,000
Executive Vice President 1997 108,513 -- $ 25,107(4) 62,000
Samuel Gulko 1998 109,250 -- -- 25,000
Chief Financial Officer, 1997 78,000 -- -- 6,000
Secretary and Treasurer 1996 30,000(5) -- -- 14,000
(1) Excludes prior years accrued salaries of $265,328, and auto allowances
and expense account reimbursements previously accrued aggregating
$84,516, all of which were paid in 1997.
(2) Includes an auto allowance of $450 per month.
(3) Commenced employment in April 1997.
(4) Represents a one-time relocation allowance.
(5) Employment commenced July 1996 on a part-time basis.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options
granted during the fiscal year ended December 31, 1998, to the Named Executive
Officers:
POTENTIAL REALIZABLE
PERCENTAGE OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
GRANTED(1) EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME (NO. OF SHARES) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- --------------- ----------- --------- ---- -- ---
Alvin J. Glasky 25,000 8% $7.25 Feb.11,2008 $113,987 $288,866
40,000 13% $7.625 Dec.17,2008 $191,813 $486,091
Stephen Runnels 10,000 3% $7.25 Feb.11,2008 $45,595 $115,546
15,000 5% $7.625 Dec.17,2008 $71,930 $182,284
Samuel Gulko 10,000 3% $7.25 Feb.11,2008 $45,595 $115,546
15,000 5% $7.625 Dec.17,2008 $71,930 $182,284
(1) The above options become exercisable in 25% increments, commencing three
months from the date of grant and each three months thereafter.
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(2) The potential realizable value is calculated from the exercise price per
share, assuming the market price of the Company's Common Stock
appreciates in value at the stated percentage rate from the date of
grant to the expiration date. Actual gains, if any, are dependent on the
future market price of the Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning stock options
exercised during the fiscal year ended December 31, 1998, by the Named Executive
Officers and the value of such officers' unexercised options at December 31,
1998:
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED VALUE ----------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Alvin J. Glasky, Ph.D -- $ -- 156,923 71,250 $953,512 $287,531
Stephen Runnels 12,000 5,940 17,500 57,500 48,438 178,438
Samuel Gulko 10,000 11,250 13,000 22,000 46,313 58,563
(1) Based upon the closing price of the Common Stock on December 31, 1998,
as reported by the NASDAQ National Market ($10.50 per share).
EMPLOYMENT AGREEMENT
The Company has an employment agreement with Dr. Alvin J. Glasky,
effective as of July 1, 1996. The agreement requires Dr. Glasky to devote all of
his productive time, attention, knowledge and skill to the affairs of the
Company during the term of the agreement. The agreement provides for an annual
base salary of $200,000 with annual increases and an annual bonus based on the
Company's attainment of certain performance objectives. The agreement, as
amended, ends on December 31, 1999, and may be terminated by the Company with or
without cause as defined in the agreement. The agreement also provides for
guaranteed severance payments equal to Dr. Glasky's annual base salary over the
remaining life of the agreement upon the termination of employment without cause
or upon a change in control of the Company. In connection with entering into
this agreement, Dr. Glasky was granted an incentive stock option to purchase
75,000 shares of Common Stock at an exercise price of $4.13 per share, which
vests in three equal annual increments.
STOCK OPTION PLANS
The Company has two stock option plans: the 1991 Stock Incentive Plan
(the "1991 Plan") and the 1997 Stock Incentive Plan (the "1997 Plan") (the
"Plans"). The Plans were adopted by the Company's shareholders and Board of
Directors in May 1991 and June 17, 1997, respectively.
The 1991 Incentive Stock Option Plan
The 1991 Plan, as amended, provides for grants of "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), nonqualified stock options, stock appreciation rights
("SARs") and bonus stock. The 1991 Plan, as amended, authorizes for issuance up
to 401,430 shares of the Company's Common Stock. Under the 1991 Plan, incentive
stock options may be granted to employees, and nonqualified stock options, SARs
and bonus stock may be granted to employees of the Company and other persons
whose participation in the 1991 Plan is determined to be in the Company's best
interest. As of December 31, 1998, there were options to purchase 181,000 shares
of Common Stock outstanding under the 1991 Plan.
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The 1997 Incentive Stock Option Plan
The 1997 Plan provides for grants of "incentive stock options" within
the meaning of the Code, nonqualified stock options and rights to purchase
shares of Common Stock ("Purchase Rights"). The 1997 Plan originally authorized
for issuance up to 500,000 shares of the Company's Common Stock, subject to
adjustment in the number and kind of shares subject to the 1997 Plan and to
outstanding shares in the event of stock splits, stock dividends or certain
other similar changes in the capital structure of the Company. The Board of
Directors has amended the 1997 Plan to increase the number of shares authorized
for issuance thereunder by 750,000, subject to stockholder approval. See
Proposal 4. Under the 1997 Plan, incentive stock options, nonqualified stock
options and Purchase Rights may be granted to employees of the Company and its
subsidiaries. Nonqualified stock options and Purchase Rights may be granted to
employees of the Company and its subsidiaries, non-employee directors and
officers, consultants and other service providers. As of December 31, 1998,
there were options to purchase 349,700 shares of Common Stock outstanding under
the 1997 Plan.
The Plans currently are administered by the Compensation Committee of
the Board of Directors (the "Committee"), which has sole discretion and
authority, consistent with the provisions of the Plans, to determine which
eligible participants will receive options, the time when options will be
granted, the terms of options granted and the number of shares which will be
subject to options granted under the Plans.
The exercisability of options outstanding under the 1997 Plan will
accelerate upon a change in control of the Company, regardless of whether the
options are assumed or new options are issued by the successor corporation.
The exercise price of incentive stock options must be not less than the
fair market value of a share of Common Stock on the date that the option is
granted (110% with respect to optionees who own at least 10% of the outstanding
Common Stock). Nonqualified options shall have such exercise price as determined
by the Committee, but not less than 85% of the fair market value on the date of
grant. The Committee has the authority to determine the time or times at which
options granted under the Plans become exercisable, provided that options expire
no later than ten years from the date of grant (five years with respect to
optionees who own at least 10% of the outstanding Common Stock). Options are
nontransferable, other than upon death, by will and the laws of descent and
distribution, and incentive stock options may be exercised only by an employee
while employed by the Company or within three months after termination of
employment (one year for termination resulting from death or disability).
SECTION 401(k) PLAN
In January 1990, the Company adopted the AIT Cash or Deferred Profit
Sharing Plan (the "401(k) Plan") covering the Company's full-time employees
located in the United States. The 401(k) Plan is intended to qualify under
Section 401(k) of the Code, so that contributions to the 401(k) Plan by
employees or by the Company, and the investment earnings thereon, are not
taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by the Company, if any, will be deductible by the Company when
made. Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit ($10,000 in 1998)
and to have the amount of such reduction contributed to the 401(k) Plan. The
401(k) Plan permits, but does not require, additional matching contributions to
the 401(k) Plan by the Company on behalf of all participants in the 401(k) Plan.
The Company has not made any contributions to the 401(k) Plan.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act, as amended (the "Exchange
Act") requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent of the Company's Common Stock, to file
initial reports of ownership and reports of changes in ownership with the SEC
and the National Association of Securities Dealers, Inc. Executive officers,
directors and persons who beneficially own more than ten percent of the
Company's Common Stock are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
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Based solely upon its review of the copies of reporting forms furnished
to the Company, and written representations that no other reports were required,
the Company believes that all filing requirements under Section 16(a) of the
Securities Exchange Act of 1934 applicable to its directors, officers and any
persons holding 10% or more of the Company's Common Stock with respect to the
Company's fiscal year ended December 31, 1998, were satisfied on a timely basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1990, the Company issued a warrant to Dr. Alvin J. Glasky
(the "Glasky Warrant") to purchase up to 88,173 shares of Common Stock of the
Company at any time between September 1, 1990, and August 31, 1995, for $3.75
per share. Effective August 31, 1995, the expiration date of the Glasky warrant
was extended to August 31, 2000.
On June 30, 1990, in exchange for cancellation of $503,144 of
indebtedness for unpaid compensation, the Company issued a total of 402,517
shares of Common Stock in the following amounts: Dr. Alvin Glasky, 184,000
shares; Sanford Glasky (the brother of Dr. Alvin Glasky), 60,013 shares; JoAnne
Law, 24,333 shares; Luana Kruse, 19,200 shares; Rosalie Glasky (the wife of Dr.
Glasky), 28,065 shares; and John W. Baldridge, 86,906 shares (the "1990
Restricted Stock Exchange"). On December 30, 1993, in exchange for cancellation
of $690,798 of indebtedness for unpaid compensation and accrued expenses, the
Company issued a total of 276,317 shares of Common Stock in the following
amounts: Dr. Alvin Glasky, 169,001 shares; Sanford Glasky, 49,837 shares; JoAnne
Law, 16,559 shares; Luana Kruse, 19,800 shares; Rosalie Glasky, 19,178 shares;
and John W. Baldridge, 1,942 shares (the "1993 Restricted Stock Exchange"). Both
the 1990 Restricted Stock Exchange and the 1993 Restricted Stock Exchange
involved a risk of forfeiture whereby if the Company did not generate a minimum
of $500,000 in total operating revenues from inception through December 31,
1995, all shares would be returned to the Company with the holders forfeiting
all rights to the shares and forfeiting any claim to the previously accrued but
unpaid compensation. Effective December 31, 1995, five of the parties, all of
whom were present or past employees of the Company, entered into agreements with
the Company whereby the forfeiture date was extended from December 31, 1995 to
December 31, 1997 in exchange for increasing the minimum total operating
revenues which the Company would need to achieve in order to avoid forfeiture of
the shares from $500,000 to $1,000,000, with such revenues to be achieved by
December 31, 1997. As of December 31, 1997, the Company did not achieve the
revenue goals set forth in the Agreements, as previously amended. The four
former employees who are parties to the Agreements have indicated disagreement
with the Company's position and have filed a lawsuit against the Company seeking
a determination that they are entitled to keep their shares. The Company has
filed a cross-complaint against the four former employees seeking the return and
cancellation of the shares. The Company's Chief Executive Officer and his wife
have agreed to surrender to the Company for cancellation the same proportion of
their shares (a total of 400,244) as the four former employees are required to
surrender based on the final resolution of the lawsuit. Until such time as the
Company can obtain the surrender of all of these shares and the matter is fully
resolved, the Company is accounting for all of the stock, which it has deemed
forfeited, as issued and outstanding.
On June 6, 1991, the Company entered into an agreement (the "1991 Patent
Agreement") with Dr. Alvin Glasky whereby Dr. Glasky assigned to the Company all
rights to the inventions covered by United States Patent No. 5,091,432 and any
corresponding foreign applications and patents, including all continuations,
divisions, reissues and renewals of said applications and any patents issued out
of or based upon said applications (the "Assigned Rights"). The 1991 Patent
Agreement was amended on July 26, 1996. The 1991 Patent Agreement, as amended,
calls for the Company to pay Dr. Glasky a two percent royalty on all revenues
derived by the Company from the use and sale by the Company of any products
covered by these patents and applications or any patents derived from them. In
the event that Dr. Glasky's employment is terminated by the Company without
cause, the royalty rate shall be increased to five percent and in the event that
Dr. Glasky dies during the term of the 1991 Patent Agreement, Dr. Glasky's
family or estate shall be entitled to continue to receive royalties at the rate
of two percent. The 1991 Patent Agreement terminates on the later of its ten
year anniversary or the expiration of the final patent included
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within the Assigned Rights. On June 30, 1996, the Company and Dr.
Glasky entered into an agreement whereby Dr. Glasky assigned to the Company all
rights to the inventions covered by United States Patent No. 5,447,939 (the
"1996 Patent Agreement"). The scope of the 1996 Patent Agreement as well as its
terms and conditions are identical in all material respects to the 1991 Patent
Agreement; provided, however, that the aggregate royalty amount with respect to
any product shall be two percent (five percent in the event of termination
without cause), even if a product is based on both patents. The 1996 Patent
Agreement was also amended on July 26, 1996. Dr. Glasky will not receive any
royalties with respect to sales of products which utilize patent rights licenses
to the Company by McMaster University. A third patent, which was issued
September 1, 1998, is also subject to the royalty provisions of the 1996 Patent
Agreement.
On December 31, 1993, the Company issued 200,000 shares of Common Stock
to Dr. Glasky in exchange for cancellation of $500,000 of indebtedness for loans
made by Dr. Glasky to the Company. Dr. Glasky received certain registration
rights with respect to these shares. The remaining $257,900 in principal on the
loans payable and accrued interest of $300,404 due to Dr. Glasky were converted
into a $558,304 promissory note which, as amended from time to time, is
currently unsecured, bears interest at 9% per annum, and is payable upon demand.
On July 8, 1998, Stephen Runnels, the Company's Executive Vice
President, borrowed $50,000 from the Company on an unsecured basis. The note
bears interest at 9% per year and together with the note principal is due on the
earlier of thirty days after termination of employment or July 8, 1999. On
August 28, 1998, in connection with his exercise of employee stock options, Mr.
Runnels paid the exercise price of $61,560 with a full recourse promissory note
payable to the Company. The note is payable, together with interest of 7% per
year, on or before August 28, 2000, and is secured by a pledge agreement on the
underlying 12,000 shares of the Company's common stock.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Administration. Decisions on compensation of the Company's executive
officers are made by the Compensation Committee of the Board (the "Committee").
Each member of the Committee is a nonemployee Director. All decisions made by
the Committee relating to the compensation of the Company's executive officers
are reviewed by the full Board, except for decisions regarding awards under the
Company's stock option and incentive plans which are made solely by the
Committee in order for the grants under such plans to satisfy Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Executive Officer Compensation Policy. The Committee's executive
compensation policies are designed to integrate executive compensation with
long-term goals, recognize and reward attainment of management goals and
objectives, and enable the Company to attract and retain executive officers. The
Committee believes a substantial portion of each executive's compensation should
be contingent upon the attainment by the executive of specific management
objectives and is also dependent upon the Company's financial performance.
Accordingly, executives are eligible for annual bonuses that correspond to
varying levels of management and Company performance.
Base Salary. The compensation of each executive officer is reviewed
annually by the Committee, with reference to the executive's performance, level
of responsibility and experience, to determine whether the current base salary
is appropriate. If significant changes in an executive's salary are to be
considered, the Committee shall refer to salary ranges paid executives with
comparable duties in companies of comparable size within the same industry in
the same geographic area in which the Company is located. Such salaries shall be
adjusted, if deemed appropriate by the Committee, in accordance with salary
surveys provided by nationally recognized research organizations. The base
salary of executive officers, other than the Company Chief Executive Officer,
shall be determined by the Committee after consultation with the Chief Executive
Officer. The base salary of the Chief Executive Officer is recommended by the
Committee to the full Board of Directors. Approval by the Board of Directors is
required for any change in base salary of the Chief Executive Officer. In
January 1999, the board established base salaries for the Company's
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executive officers at approximately the median base compensation level for
officers in similar positions based upon a salary survey provided by a
nationally recognized research organization.
Bonuses. In addition to the base salary, the Committee may establish a
Compensation Plan setting forth a methodology for determining incentive
compensation ("Bonus"), if any, for executive officers. Such plan may also
include incentive compensation for key managers of the Company. In accordance
with the plan, the Committee shall, in consultation with the Chief Executive
Officer, establish target bonus levels for the Company's executive officers, and
key managers, if appropriate, based on financial resources of the Company. The
actual award of incentive compensation shall be determined by the attainment of
individual management goals and objectives, established to specifically relate
to the individual's position within the Company. All such goals and objectives
shall be supportive of the overall strategy and goals of the Company. Due to the
financial requirements of the Company, the Committee did not award any cash
bonuses in 1998.
Stock Option Grants and Restricted Stock Awards. The Committee endorses
the position that granting stock options and restricted stock awards to the
Company's executive officers can be very beneficial to stockholders because it
aligns management's and stockholders' interests in the enhancement of
stockholder values. Accordingly, the Committee has granted stock options to the
executive officers on an annual basis. The number of options received by each
executive officer shall be fixed by the Committee after consideration of
recommendation made by the Chief Executive Officer. The options are exercisable
in installments as determined by the Committee commencing three months from the
date of grant and are granted at an exercise price equal to the price of the
Company's stock at the close of business on the date of the grant. Awards of
such Stock Options and Restricted Stock shall be determined solely by the
Committee in order that such grants satisfy Rule 16b-3 of the Securities
Exchange Act of 1934, as amended.
Other Benefits. The executive officers participate in employee benefit
programs, such as the Company's health care and vacation programs.
Compensation of the Chief Executive Officer. The compensation of Dr.
Alvin J. Glasky, the Company's Chief Executive Officer and its founder, is
determined in accordance with an Employment Agreement (the "Agreement") entered
into in July 1996. The Agreement, amended to expire December 31, 1999,
stipulates that Dr. Glasky is to receive a base salary of $200,000 per year,
which is the amount he was paid in 1998. The Compensation Committee considered
the same factors as discussed above, compared salaries of chief executive
officers of similarly-sized companies in the industry in setting the
compensation of Dr. Glasky and also considered Dr. Glasky's qualifications as a
scientist and his ability to guide the Company and to manage its scientific
programs and business strategy. Taking into consideration the financial
requirements of the Company, Dr. Glasky has not requested and the Committee has
not granted an increase in Dr. Glasky's compensation since inception of the
Agreement.
Submitted by the Compensation Committee
Eric L. Nelson, Ph.D., Chairman
Carol O'Cleireacain, Ph.D.
Joseph Rubinfeld, Ph.D.
Paul H. Silverman, Ph.D., D.Sc.
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PERFORMANCE GRAPH
The following graph compares the cumulative, five-year shareholder
returns on the Company's Common Stock with the shareholder returns of the NASDAQ
Stock Market Index, the Russel 2000 Index, the Standard & Poor's Small Cap 600
Index and a custom peer group index. The graph assumes that the value of the
investment in the Company's Common Stock and each index was $100.00 on September
26, 1996.
[PERFORMANCE GRAPH]
26-Sep-96 31-Dec-96 30-Jun-97 31-Dec-97 30-Jun-98 31-Dec-98
NEOT $100 $ 74 $283 $187 $223 $187
Russell 2000 $100 $106 $116 $129 $136 $126
S&P Small Cap 600 $100 $106 $118 $133 $142 $132
Custom Comp Index(*) $100 $109 $ 91 $ 76 $ 62 $ 68
(*) The 11-Stock Custom Composite Index consists of Cambridge NeuroScience,
Inc., Cephalon, Inc., CoCensys, Inc., Cortex Pharmaceuticals, Cytotherapeutics,
Inc., Gliatech, Inc., Guilford Pharmaceuticals, Neurocrine Biosciences Inc.,
Neurogen Corporation, Sibia Neurosciences and Vertex Pharmaceuticals.
NeoTherapeutics' total return is based upon the IPO price of $5.60 on September
26, 1996.
PROPOSAL 2
APPROVAL OF ISSUANCE OF COMMON STOCK
PURSUANT TO CONVERSION RIGHTS UNDER A
PREFERRED STOCK FINANCING TRANSACTION
REASON FOR THIS PROPOSAL
In order to fund ongoing research and development of the Company's
products and to provide general working capital, on January 29, 1999, the
Company entered into a Preferred Stock Purchase Agreement with two institutional
investors (the "Purchase Agreement") and sold 400 shares of the Company's 5%
Series A Preferred Stock with Conversion Features (the "Series A Preferred
Stock") and warrants to purchase 75,000 shares of Common Stock, for total
consideration of $4.0 million. Under the Purchase Agreement, the Company also
has the option to sell $2.0 million of 5% Series B Preferred Stock
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with Conversion Features ("Series B Preferred Stock") to the investors
commencing July 28, 1999, and ending September 16, 1999, subject to certain
conditions contained in the Purchase Agreement and the Certificate of
Designation governing the Series A Preferred Stock. A more detailed description
of this transaction is set forth below under the caption "Private Placement of
Preferred Stock."
The Company's Common Stock trades on the Nasdaq National Market. The
Nasdaq corporate governance standards require stockholder approval of the sale
or issuance of Common Stock in a private placement transaction at a price less
than the greater of book or market value, if the number of new shares would
equal 20% or more of the number of shares outstanding at the time the Company
enters into the transaction. As of January 29, 1999, which was the date the
Company entered into the Purchase Agreement, 20% of the number of shares of
Common Stock outstanding equaled 1,245,141 shares (the "Preferred Stock Nasdaq
Share Limit"). As described below, because the conversion price of the Series A
Preferred Stock (and the Series B Preferred Stock, if issued) varies based upon
on the market value of the Common Stock, the conversion of such Preferred Stock
could result in the issuance of a number of shares of Common Stock in excess of
the Preferred Stock Nasdaq Share Limit. For that reason, the Company seeks the
approval of such potential issuances in order to comply with the Nasdaq
standards.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting is required to
approve the issuance of the Common Stock in excess of the Preferred Stock Nasdaq
Share Limit. Broker non-votes with respect to this proposal will be treated as
neither a vote "for" nor a vote "against" the proposal, although they will be
counted in determining if a quorum is present. Abstentions will have the same
effect as a vote "against" the proposal because they represent shares present or
represented at the meeting and entitled to vote on the proposal, thereby
increasing the number of affirmative votes required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THIS PROPOSAL.
PRIVATE PLACEMENT OF PREFERRED STOCK
This summary is qualified in its entirety by reference to the Purchase
Agreement, Certificate of Designation of the Company setting forth the rights
and privileges of the Series A Preferred Stock, and the form of related
warrants. Copies of such documents have been filed with the Securities Exchange
Commission as exhibits to the Company's Current Report on Form 8-K, filed
February 9, 1999, and can also be obtained by writing to the Secretary,
NeoTherapeutics, Inc., 157 Technology Drive, Irvine, California 92618.
ISSUANCE. On January 29, 1999, the Company entered into the Purchase
Agreement with Westover Investments L.P., a Delaware limited partnership, and
Montrose Investments Ltd., a Cayman Islands exempt limited partnership. Under
the Purchase Agreement, the Company issued and sold a total of 400 shares of its
5% Series A Preferred Stock with Conversion Features and warrants to purchase
75,000 shares of Common Stock, for total cash consideration of $4.0 million.
CONVERSION FEATURES. Each share of Series A Preferred Stock is
convertible into the number of shares of Common Stock equal to the quotient of
(i) $10,000 plus accrued dividends, if any, divided by (ii) the Conversion
Price. Dividends accrue at the rate of 5% per annum on the Series A Preferred
Stock and may be paid quarterly in cash or, at the Company's option, accrued and
paid in Common Stock at the time of conversion. Until May 29, 1999, the
conversion price is fixed at $13.06 per share. After May 29, 1999, the Series A
Preferred Stock is convertible at a price equal to the lesser of $13.06 or 101%
of the average of the ten lowest closing bid prices of the Common Stock
occurring in the 30 trading days preceding the particular conversion. The fixed
conversion price of $13.06 is also subject to adjustment in the event of stock
splits, stock dividends, stock combinations, stock reclassifications, certain
distributions of Common Stock and issuances of Common Stock below the then
effective conversion price (subject to certain
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exceptions). The right of the holders of the Series A Preferred Stock to convert
their shares is subject to the following limitations:
1) In no event can all 400 shares of Series A Preferred Stock be
converted into more than 1,450,000 shares of Common Stock;
2) During each month between April 29, 1999, and August 29, 1999,
no more than 25% of the Series A Preferred Stock outstanding on April
29, 1999, may be converted on a cumulative basis;
3) No holder of Series A Preferred Stock may convert such shares
if it would result in such holder beneficially owning more than 4.999%
of the then outstanding shares of Common Stock, unless such holder
provides 75 days notice to the Company;
4) No holder of Series A Preferred Stock may convert such shares
if it would result in such holder beneficially owning more than 9.999%
of the then outstanding shares of Common Stock, unless such holder
provides 75 days notice to the Company;
5) All shares of Series A Preferred Stock will automatically
convert on the later of May 29, 2002, or the third anniversary of the
effectiveness of the registration statement covering resale of shares of
Common Stock issuable on conversion of the Series A Preferred Stock,
subject to certain extensions.
REDEMPTION FEATURES. If the Common Stock trades for a ten-day period at
a price above $20.00 per share or below $5.00 per share, the Company may redeem
the Series A Preferred Stock at the price per share equal to the greater of (i)
$10,000 plus accrued dividends, or (ii) the market value of the shares of Common
Stock into such share is then convertible. The holders of the Series A Preferred
Stock are also entitled to elect redemption in certain events adversely
affecting the liquidity of the underlying Common Stock. In addition, the holders
of the Series A Preferred Stock may elect redemption on a change of control of
the Company. For this purpose, a change of control includes (i) the acquisition
by any person of more than 33% of the voting securities of the Company, (ii) the
replacement of more than one-half of the members of the Board of Directors, if
not approved by the current directors or their approved replacements, (iii) the
merger of the Company into another entity, or sale of substantially all the
Company's assets, or (iv) an agreement to do any of the foregoing.
WARRANTS. In connection with the purchase of the Series A Preferred
Stock, the investors also received warrants to purchase a total of 75,000 shares
of Common Stock at an exercise price of $12.98 per share, exercisable until
January 29, 2004. The number of shares subject to such warrants and the exercise
thereof are subject to adjustment in the event of stock splits, stock dividends,
stock combinations, stock reclassifications, certain distributions of Common
Stock and issuances of Common Stock below the exercise price then in effect
(subject to certain exceptions).
POTENTIAL ISSUANCE OF SERIES B PREFERRED STOCK. Under the Purchase
Agreement, commencing July 28, 1999, and ending September 16, 1999, the Company
has the right to sell to the investor 200 shares of Series B Preferred Stock
which the Company may authorize in the future, at a total purchase price of $2.0
million. The Series B Preferred Stock shall have rights, preferences and
privileges substantially identical to, and shall rank on par with, the Series A
Preferred Stock except that the initial conversion price shall be 125% of the
average of the closing bid prices for the Company's Common Stock for the 15
trading days immediately preceding the issuance of such Series B Preferred
Stock. Conditions to the Company's ability to sell the Series B Preferred Stock
include, among others, (i) that no further approval of the Company's
stockholders be required in order to issue a number of shares of Common Stock
equal to 200% of the shares of Common Stock initially issuable upon conversion
of the Series B Preferred Stock, (ii) that the Company shall have performed its
obligations with respect to the Series A Preferred Stock and any conversion
thereof, (iii) that the registration statement registering the Common Stock
issuable upon conversion of the Series A Preferred Stock shall have been
effective for not less that the 60 days preceding
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the proposed sales of the Series B Preferred Stock, (iv) that there shall have
been no material adverse changes to the Company or its prospects, and (v) that
there shall have been no change of control of the Company.
REGISTRATION FOR RESALE. Pursuant to a Registration Rights Agreement
which the Company entered into with Westover Investments L.P. and Montrose
Investments Ltd., the Company filed on February 26, 1999, a registration
statement with the Securities Exchange Commission in order to permit the holders
of the Series A Preferred Stock to resell to the public the shares of Common
Stock that they acquire upon the conversion of the Series A Preferred Stock or
upon exercise of the related warrants. In the event the Company issues shares of
the Series B Preferred Stock, the Company has equivalent registration
obligations as to shares of Common Stock issuable upon a conversion of such
Series B Preferred Stock.
EFFECT ON OUTSTANDING COMMON STOCK
The issuance of Common Stock upon the conversion of the Series A
Preferred Stock and Series B Preferred Stock (if issued) and exercise of the
related warrants will have no effect on the rights or privileges of existing
holders of Common Stock except that the economic and voting interests of each
stockholder will be diluted as a result of such issuance. Prior to conversion,
holders of the Series A Preferred Stock and Series B Preferred Stock (if issued)
will be entitled to receive dividends and distributions upon a liquidation of
the Company in preference to claims of holders of the Common Stock.
As noted above, the exact number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock and Series B Preferred Stock (if
issued), and the resulting dilution to existing holders of Common Stock, cannot
currently be determined, and may vary with the market price of the Common Stock.
The extent of such dilution depends on the future market price of the Common
Stock, the timing of conversion of Series A Preferred Stock and Series B
Preferred Stock (if issued), and exercise of the related warrants, and the
election of the Company to accrue dividends on the Series A Preferred Stock and
Series B Preferred Stock (if issued) for payment in Common Stock upon
conversion. The potential effects of any such dilution on the existing
stockholders of the Company include the significant dilution of the current
stockholders' economic and voting interests in the Company.
CONSEQUENCES IF STOCKHOLDER APPROVAL IS NOT OBTAINED
The terms of the Series A Preferred Stock provide that the Company will
not be obligated to issue shares of Common Stock in excess of the Preferred
Stock Nasdaq Share Limit unless and until stockholder approval of the issuance
of Common Stock issuable upon conversion of the Series A Preferred Stock and
exercise of the related warrants sought hereby is obtained. In addition, unless
such stockholder approval is obtained, the Company may not be able to sell to
the investors some or all of the Series B Preferred Stock. If the stockholder
approval sought hereby is not obtained, the Nasdaq rules will prohibit the
Company from issuing with respect to the Series A Preferred Stock and related
warrants, and Series B Preferred Stock (to the extent issued) more than
1,245,141 shares of Common Stock. If the approval sought hereby is not granted
by stockholders, the Company can be required by the holders of the Series A
Preferred Stock to pay cash in lieu of converting any shares of Series A
Preferred Stock which cannot be converted because of the limitations imposed by
the Nasdaq rules. The amount of cash which the Company may be required to pay in
the event stockholder approval is not obtained will depend on the per share
market price of the Common Stock at the time of attempted conversion.
IF THE STOCKHOLDER APPROVAL SOUGHT HEREBY IS NOT OBTAINED AND THE
COMPANY IS REQUIRED TO PAY CASH RATHER THAN CONVERTING A PORTION OF THE
OUTSTANDING SHARES OF SERIES A PREFERRED STOCK, THERE CAN BE NO ASSURANCE THAT
THE COMPANY WOULD HAVE AVAILABLE THE CASH RESOURCES TO SATISFY SUCH OBLIGATIONS
OR THAT IT WOULD BE ABLE TO MAKE SUCH PAYMENTS IN COMPLIANCE WITH APPLICABLE
LAW. IN THE EVENT THE STOCKHOLDER APPROVAL SOUGHT HEREBY IS NOT OBTAINED,
COMPLIANCE WITH THIS OBLIGATION COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
COMPANY'S FINANCIAL CONDITION AND ABILITY TO IMPLEMENT ITS BUSINESS STRATEGY. IN
ADDITION, ANY DELAY IN PAYMENT OF THE AMOUNT PAYABLE WILL CAUSE SUCH AMOUNT TO
ACCRUE INTEREST AT THE RATE OF FIFTEEN PERCENT PER ANNUM UNTIL PAID.
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INTERESTS OF CERTAIN PERSONS
Neither of the purchasers of the Series A Preferred Stock, nor any of
their affiliates, is a director or executive officer of the Company. To the
Company's knowledge, neither of the purchasers of Series A Preferred Stock nor
any of their affiliates is a 5% stockholder of the Company.
PROPOSAL 3
APPROVAL OF ISSUANCE OF COMMON STOCK
PURSUANT TO A PRIVATE
EQUITY LINE OF CREDIT AGREEMENT
REASON FOR THIS PROPOSAL
In order to provide a source of future capital for ongoing research and
development of the Company's products and general working capital, on March 27,
1998, the Company entered into a Private Equity Line of Credit Agreement (the
"Equity Line Agreement") with Kingsbridge Capital Limited (the "Investor").
Under the Equity Line Agreement, the Company has the option to sell up to $15
million of Common Stock to the Investor during the 30-month period commencing
August 13, 1998, and ending February 13, 2001, subject to certain conditions
contained in the Equity Line Agreement. In addition, the Company issued to the
Investor a warrant to purchase 25,000 shares of Common Stock at a price of
$11.61875 per share, subject to adjustment. A more detailed description of this
transaction is set forth below under the caption "Equity Line Agreement."
As described in Proposal 2 above, the Company's Common Stock trades on
the Nasdaq National Market. The Nasdaq corporate governance standards require
stockholder approval of the sale or issuance of Common Stock in a private
placement transaction at a price less than the greater of book or market value,
if the number of new shares would equal 20% or more of the number of shares
outstanding at the time the Company enters into the transaction. Under the
Equity Line Agreement, the Company may not sell more than 1,089,387 shares (the
"Equity Line Nasdaq Share Limit") to the Investor unless stockholder approval of
this transaction is obtained. As described below, because the number of shares
which may be sold to the Investor under the Equity Line Agreement may exceed the
Equity Line Nasdaq Share Limit, the Company seeks the approval of such potential
issuances in order to comply with the Nasdaq standards. As of March 31, 1999, an
aggregate of 615,868 shares of Common Stock had been issued and sold to the
Investor under the Equity Line Agreement for aggregate gross proceeds of $4.5
million. The Company will be able to sell an additional 473,519 shares of Common
Stock under the Equity Line Agreement without shareholder approval.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting is required to
approve the issuance of the Common Stock in excess of the Equity Line Nasdaq
Share Limit. Broker non-votes with respect to this proposal will be treated as
neither a vote "for" nor a vote "against" the proposal, although they will be
counted in determining if a quorum is present. Abstentions will have the same
effect as a vote "against" the proposal because they represent shares present or
represented at the meeting and entitled to vote on the proposal, thereby
increasing the number of affirmative votes required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THIS PROPOSAL.
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EQUITY LINE AGREEMENT
This summary is qualified in its entirety by reference to the Equity
Line Agreement, the related Registration Rights Agreement, and warrants. Copies
of such documents have been filed with the Securities Exchange Commission as
exhibits to the Company's Registration Statement (No. 333-52331), filed May 11,
1998, and can also be obtained by writing to the Secretary, NeoTherapeutics,
Inc., 157 Technology Drive, Irvine, California 92618.
On March 27, 1998, the Company entered into the Equity Line Agreement
with Kingsbridge Capital Limited, a private investor (the "Investor"), under
which the Company may issue and sell, from time to time, shares of its Common
Stock for cash consideration up to an aggregate of $15 million. Pursuant to the
requirements of the Equity Line Agreement, the Company filed a registration
statement with the Securities and Exchange Commission ("SEC") in order to permit
the Investor to resell to the public any shares that it acquires pursuant to the
Equity Line Agreement. Commencing as of August 13, 1998, the date the
registration statement was declared effective by the SEC and continuing until
February 13, 2001, the Company may from time to time at its sole discretion, and
subject to certain restrictions set forth in the Equity Line Agreement, sell
("put") shares of its Common Stock to the Investor at a price equal to 88
percent of the then current average market price of the Company's Common Stock,
as determined under the Equity Line Agreement. Puts can be made every 15 days in
amounts ranging from a minimum of $250,000 to a maximum of $2,000,000, depending
on the trading volume and the market price of the Common Stock at the time of
each put. The Company was required to put at least $1,000,000 of its Common
Stock to the Investor over the life of the Equity Line Agreement, which
requirement has been satisfied.
Under the Equity Line Agreement, the average market price of the
Company's Common Stock for purposes of calculating the purchase price to be paid
by the Investor will be calculated as the average of the lowest trade prices of
the Common Stock (as reported by Nasdaq) on each of the five days on which the
Nasdaq National Market is open for business (a "trading day"), during the period
which includes the two trading days preceding the day on which the Company
delivers notice to the Investor that the Company is exercising a put (a "Put
Notice"), the trading day on which the Put Notice is delivered, and the two
trading days following the trading day on which the Put Notice is delivered.
The Company's ability to put shares of its Common Stock, and the
Investor's obligation to purchase the shares, is conditioned upon the
satisfaction of certain conditions. These conditions include: (i) the continued
effectiveness of the registration statement, (ii) the representations and
warranties of the Company set forth in the Equity Line Agreement must be
accurate as of the date of each put, (iii) the Company shall have performed and
complied with all obligations under the Equity Line Agreement, the Registration
Rights Agreement entered into between the Company and the Investor in connection
with the Equity Line Agreement and the Warrant required to be performed as of
the date of each put, (iv) no statute, rule, regulation, executive order,
decree, ruling or injunction shall be in effect which prohibits or directly and
adversely affects any of the transactions contemplated by the Equity Line
Agreement, (v) at the time of a put, there shall have been no material adverse
change in the Company's business, operations, properties, prospects or financial
condition since the date of filing of the Company's most recent periodic report
filed with the SEC pursuant to the Securities Exchange Act of 1934, (vi) the
Company's Common Stock shall not have been delisted from the Nasdaq National
Market nor suspended from trading, (vii) the number of shares to be put to the
Investor, together with any shares then held by the Investor, shall not exceed
9.9% of all shares of Common Stock of the Company that would be outstanding upon
completion of the put, (viii) the Company's Common Stock must have a minimum bid
price of $3.00 per share at the time of the put, and (ix) the average trading
volume of the Company's Common Stock for 26 of the 30 consecutive trading days
immediately preceding a put must be at least 10,000 shares per day.
The Investor has agreed that it will not engage in short sales of the
Company's Common Stock except during the three-day period commencing on the date
the Company elects to exercise a put and sell shares to the Investor and ending
three days later on the date certificates representing the shares are delivered
to the Investor. Any short sales by the Investor may be covered only with shares
of Common Stock issued to the Investor pursuant to the Equity Line Agreement.
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In conjunction with the Equity Line Agreement, on March 27, 1998, the
Company issued to the Investor a warrant, which entitles the holder to purchase
25,000 shares of Common Stock of the Company at a price of $11.61875 per share.
The warrant is exercisable until September 24, 2001. The warrant contains
provisions that protect against dilution by adjustment of the exercise price and
the number of shares issuable thereunder upon the occurrence of certain events,
such as a merger, stock split or reverse stock split, stock dividend or
recapitalization. The exercise price of the warrant is payable either (i) in
cash or (ii) by a "cashless exercise", in which that number of shares of Common
Stock underlying the warrant having a fair market value at the time of exercise
equal to the aggregate exercise price are cancelled as payment of the exercise
price.
EFFECT ON OUTSTANDING COMMON STOCK
The issuance of Common Stock under the Equity Line Agreement will have
no effect on the rights or privileges of existing holders of Common Stock except
that the economic and voting interests of each stockholder will be diluted as a
result of such issuance.
As noted above, the exact number of shares of Common Stock issuable
under the Equity Line Agreement, and the resulting dilution to existing holders
of Common Stock, cannot currently be determined, and will vary with the extent
to which the Company utilizes the Equity Line Agreement, the market price of the
Common Stock, and exercise of the related warrant. The potential effects of any
such dilution on the existing stockholders of the Company include the
significant dilution of the current stockholders' economic and voting interests
in the Company.
CONSEQUENCES IF STOCKHOLDER APPROVAL IS NOT OBTAINED
The terms of the Equity Line Agreement provide that the Company will not
be permitted to issue shares of Common Stock thereunder in excess of the Equity
Line Nasdaq Share Limit unless and until stockholder approval of the issuance of
Common Stock sought hereby is obtained. If the stockholder approval sought
hereby is not obtained, the Nasdaq rules will prohibit the Company from issuing
under the Equity Line Agreement more than 1,089,387 shares of Common Stock, of
which 615,868 shares have already been issued. As a result, the Company's
ability to use the Equity Line Agreement to raise capital will be limited and,
in the event the Company needs additional capital, it will have to seek
alternatives which may be less favorable or unavailable.
INTERESTS OF CERTAIN PERSONS
Neither the Investor, nor any of its affiliates, is a director or
executive officer of the Company. To the Company's knowledge, neither the
Investor nor any of its affiliates is a 5% stockholder of the Company.
PROPOSAL 4
INCREASE IN THE NUMBER OF SHARES IN THE
NEOTHERAPEUTICS, INC. 1997 STOCK INCENTIVE PLAN
The Board of Directors has approved, subject to stockholder approval, an
amendment to the Company's 1997 Stock Incentive Plan (the "1997 Plan") to
increase the number of shares of Common Stock authorized for issuance thereunder
from 500,000 to 1,250,000. As of April 5, 1999, there were available for
issuance under the 1997 Plan approximately 150,300 shares of Common Stock. The
additional 750,000 shares will be reserved for future use by being offered to
individuals who meet the qualifications for participation in the 1997 Plan. The
Board of Directors believes that the proposed amendment to increase the number
of shares of Common Stock authorized under the 1997 Plan is necessary to
continue the effectiveness of the 1997 Plan in achieving the Company's objective
to attract, motivate and retain the services of qualified employees, officers
and directors (including non-employee officers and directors), consultants and
other service providers. The Board of Directors believes that the successful
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development of the Company's business largely depends on the judgment,
initiative and efforts of such individuals, and that stock options provide an
opportunity to participate in the success and increased value of the Company.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting is required to
approve the increase in the number of shares in the 1997 Plan. Broker non-votes
with respect to this proposal will not be counted for determining whether this
proposal is approved. Proxies marked "abstain" or a vote to abstain by a
stockholder present in person at the Annual Meeting will have the same legal
effect as a vote "against" the matter because it represents a share present or
represented at the meeting and entitled to vote, thereby increasing the number
of affirmative votes required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
DESCRIPTION OF THE 1997 PLAN
The following description of the principal features of the 1997 Plan is
qualified in its entirety by reference to the text of the 1997 Plan, a copy of
which can be obtained free of charge by writing to the Secretary,
NeoTherapeutics, Inc., 157 Technology Drive, Irvine, California 92618.
The 1997 Plan as originally adopted authorized up to 500,000 shares of
Common Stock for issuance. If the amendment is approved, the total authorized
shares of Common Stock would be 1,250,000, subject to adjustment in the number
of outstanding shares in the event of stock splits, stock dividends or certain
other similar changes in the capital structure of the Company. The 1997 Plan
provides for grants of "incentive stock options" as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options and rights to purchase shares of Common Stock ("Purchase Rights").
Incentive stock options, nonqualified stock options and Purchase Rights may be
granted to employees of the Company and its subsidiaries. Nonqualified stock
options and Purchase Rights may be granted to employees of the Company and its
subsidiaries, non-employee directors and officers, consultants and other service
providers. As of April 16, 1999, approximately 42 persons were eligible to
participate in the 1997 Plan.
The Board of Directors, or a committee consisting of two or more members
of the Board of Directors, administers the 1997 Plan (the "Administrator"). The
1997 Plan currently is administered by the Compensation Committee of the Board
of Directors. The Administrator has the full power and authority to interpret
the 1997 Plan, select the recipients of options and Purchase Rights, determine
and authorize the type, terms and conditions of, including vesting provisions,
and the number of shares subject to, grants under the 1997 Plan, and adopt,
amend and rescind rules relating to the 1997 Plan. The term of options may not
exceed 10 years from the date of grant (5 years in the case of an incentive
stock option granted to a person who owns more than 10% of the combined voting
power of all classes of stock of the Company). The option exercise price for
each share granted pursuant to a nonqualified stock option may not be less than
85% of the fair market value of a share of Common Stock at the time such option
is granted. The option exercise price for each share granted pursuant to an
incentive stock option may not be less than 100% of the fair market value of a
share of Common Stock at the time such option is granted (110% of fair market
value in the case of an incentive stock option granted to a person who owns more
than 10% of the combined voting power of all classes of stock of the Company).
There is no minimum purchase price for shares of Common Stock purchased pursuant
to a Purchase right, and any such purchase price shall be determined by the
Administrator. The maximum number of shares for which options or Purchase Rights
may be granted to any one person during any one calendar year under the 1997
Plan is 100,000. The aggregate fair market value of the Common Stock (determined
as of the date of grant) with respect to which incentive stock options granted
under the 1997 Plan or any other stock option plan of the Company become
exercisable for the first time by any optionee during any calendar year may not
exceed $100,000. The
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exercisability of options outstanding under the 1997 Plan will accelerate upon a
change in control of the Company, regardless of whether the options are assumed
or new options are issued by the successor corporation.
The option price of an incentive stock option or nonqualified stock
option is payable in full upon exercise, and the purchase price of stock
purchased pursuant to a Purchase Right must be paid in full upon the acceptance
of the Purchase Right. Payment of the option price upon exercise of a stock
option or for shares purchased pursuant to a Purchase Right may be made in cash,
by check, by the delivery of shares of Common Stock (valued at their fair market
value as of the date of the exercise of an option or Purchase Right), by the
optionee's or purchaser's promissory note in a form and on terms acceptable to
the Administrator, by the cancellation of indebtedness of the Company to the
optionee or purchaser, by the waiver of compensation due or accrued to the
optionee or purchaser for services rendered, or by any combination of the
foregoing methods of payment. In addition, the option price for options granted
under the 1997 Plan may be made by a "same day sale" commitment from the
optionee and a broker-dealer that is a member of the National Association of
Securities Dealers, Inc. ("NASD Dealer") whereby the optionee irrevocably elects
to exercise his or her option and to sell a portion of the shares so purchased
to pay for the exercise price and whereby the NASD Dealer irrevocably commits
upon receipt of such shares to forward the Exercise Price directly to the
Company, by a "margin" commitment from the optionee and an NASD Dealer whereby
the optionee irrevocably elects to exercise his or her option and to pledge the
shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
exercise price directly to the Company, or any combination of the foregoing
methods of payment.
Neither options nor Purchase Rights granted under the 1997 Plan may be
transferred other than by will or by the laws of descent and distribution.
Shares purchased pursuant to Purchase Rights generally shall be restricted for a
period of time, during which such shares may be repurchased by the Company, and
therefore these share may not be sold, assigned, pledged or transferred until
such time as the Company no longer has the right to reacquire any such shares.
The Board of Directors may alter, amend, suspend or terminate the 1997
Plan at any time. However, any changes which affect or impair the rights of any
person who holds an outstanding stock option or Purchase Right may not be
effected without such person's consent. Unless sooner terminated by the Board of
Directors, the 1997 Plan will terminate on May 2, 2007.
The Administrator shall determine who may be selected to receive option
or Purchase Rights under the 1997 Plan, and shall determine the number of
options or Purchase rights that may be granted to any individual. The following
table contains information concerning certain stock options granted under the
1997 Plan during the year ended December 31, 1998:
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WEIGHTED
AVERAGE
EXERCISE PRICE NUMBER
NAME AND POSITION ($/SHARE) OF SHARES
----------------- -------------- ---------
Alvin J. Glasky, Ph.D., Chairman of the Board, $7.914 65,000
Chief Executive Officer and President
Stephen Runnels, Executive Vice President $7.925 25,000
Samuel Gulko, Chief Financial Officer, Secretary $7.925 25,000
and Treasurer
All Current Executive Officers as a
Group (4 persons) $7.920 140,000
Non-Executive Director Group (6 persons) $6.73 100,000
Non-Executive Officer Employee Group (28 persons) $8.064 64,700
- ----------
* As of April 16, 1999, the market value of the Company's Common Stock as
reported by the Nasdaq Stock Market was $9.25 per share.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is intended for
general information only. State and local income tax consequences are not
discussed, and may vary from locality to locality.
Incentive Stock Options. There is no taxable income to an employee when
an incentive stock option is granted or when that option is exercised; however,
generally the amount by which the fair market value of the shares at the time of
exercise exceeds the option price will be included in the optionee's alternative
minimum taxable income upon exercise. If stock received on exercise of an
incentive stock option is disposed of in the same year the option was exercised,
and the amount realized is less than the stock's fair market value at the time
of exercise, the amount includable in the alternative minimum taxable income
will be the amount realized upon the sale or exchange of the stock, less the
taxpayer's basis in the stock. Gain realized by an optionee upon the sale of the
stock issued upon exercise of an incentive stock option is taxable as long-term
capital gain, and no tax deduction is available to the Company, unless the
optionee disposes of the stock within two years after the date of grant of the
option or within one year after the date of exercise. In such event the
difference between the option exercise price and the fair market value of the
shares on the date of the optionee's exercise will be taxed at ordinary income
rates, and, subject to Section 162(m) of the Code (which limits the
deductibility of compensation in excess of $1,000,000 for certain executive
officers), the Company will be entitled to a deduction to the extent the
employee must recognize ordinary income.
Nonqualified Stock Options. The recipient of a nonqualified stock option
will not realize taxable income upon the grant of the option, nor will the
Company be entitled to take any deduction. Upon the exercise of a nonqualified
stock option, the optionee will realize ordinary income and, subject to Section
162(m) of the Code, the Company will be entitled to a deduction in an amount
equal to the difference between the option exercise price and the fair market
value of the stock on the date of exercise. The Company may be required to
withhold taxes on the ordinary income realized by an optionee upon exercise of
nonqualified stock options in order to be entitled to the tax deduction. An
optionee's basis for the stock for purposes of determining gain or loss on any
subsequent disposition of the shares generally will be the fair market value of
the stock on the date of exercise of the nonqualified stock option.
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Purchase Rights. The recipient of restricted stock pursuant to a
Purchase Right will not cause a recipient to realize taxable income until the
expiration of any repurchase rights retained by the Company with respect to such
stock, unless the recipient makes an election under Section 83(b) of the Code to
be taxed as of the date of purchase. If no repurchase rights are retained or if
a Section 83(b) election is made, the participant will recognize ordinary income
in an amount equal to the difference between the purchase price paid for the
shares and the fair market value of such shares on the date of purchase. If no
Section 83(b) election is made or if repurchase rights are retained, the
recipient will realize taxable income on each date that the recipient's
ownership rights vest (i.e., when the Company no longer has the right to
repurchase all or a portion of the shares). The recipient will recognize
ordinary income, and, subject to Section 162(m) of the Code, the Company will be
entitled to a deduction on each date shares vest in an amount equal to the
excess of the fair market value of such shares on that date over the purchase
price paid for such shares. However, if the recipient is subject to Section
16(b) of the Exchange Act, and if no Section 83(b) election was made at the time
of purchase, the date that ordinary income is recognized for shares which vest
within six months of purchase date shall be deferred to six months from the date
of purchase.
PROPOSAL 5
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP to continue as
the Company's independent public accountants for the year ending December 31,
1999, and to audit the books and accounts of the Company for that year, subject
to ratification of its selection by the stockholders at the Annual Meeting.
Arthur Andersen LLP has served as the independent accountants of the Company
since 1989. Representatives of Arthur Andersen LLP will be present at the Annual
Meeting to respond to appropriate questions from stockholders and will have an
opportunity to make a statement if they so desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the 2000
Annual Meeting of Stockholders and inclusion in the Company's proxy statement
with respect to such meeting should arrange for such proposal to be delivered to
the Company at its principal place of business no later than December 31, 1999
in order to be considered for inclusion in the Company's proxy statement
relating to such meeting. Matters pertaining to such proposals, including the
number and length thereof, and the eligibility of persons entitled to have such
proposals included, are regulated by the Securities Exchange Act of 1934, the
Rules and Regulations of the Securities and Exchange Commission and other laws
and regulations to which interested persons should refer.
On May 21, 1998, the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act of
1934, as amended. The amendment to Rule 14a-4(C)(1) governs the Company's use of
its discretionary proxy voting authority with respect to a stockholder proposal
that is not addressed in the Company's proxy statement. The new amendment
provides that if a proponent of a proposal fails to notify the Company at least
45 days prior to the month and day of mailing of the prior year's proxy
statement, then the Company will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussions of
the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of Stockholders, if
the Company is not provided notice of a stockholder proposal, which the
stockholder has not previously sought to include in the Company's proxy
statement, by March 23, 1999, the Company will be allowed to use its
discretionary voting authority if such proposal is raised at the meeting.
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OTHER MATTERS
The Board of Directors knows of no other business to be acted upon at
the Annual Meeting. However, if any other business properly comes before the
Annual Meeting, the persons named in the enclosed proxy will have the discretion
to vote on such matters in accordance with their best judgment.
The financial information included in the Company's Annual Report to
Stockholders which is being mailed to each stockholder with this Proxy
Statement, is hereby incorporated by reference.
April 26, 1999 By Order of the Board of Directors
/s/ SAMUEL GULKO
Samuel Gulko
Secretary
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PROXY NEOTHERAPEUTICS, INC.
157 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF NEOTHERAPEUTICS, INC.
The undersigned hereby appoints Dr. Alvin J. Glasky and Samuel Gulko, and
each of them individually, the attorney, agent and proxy of the undersigned,
with full power of substitution, to vote all the shares of NEOTHERAPEUTICS, INC.
which the undersigned is entitled to vote at the 1999 Annual Meeting of
Stockholders to be held at the Company's corporate headquarters located at 157
Technology Drive, Irvine, California, 92618 on June 14, 1999, at 3:30 P.M., and
at any and all adjournments or postponements thereof, as follows:
1. Election of Class II Directors:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as indicated to the all nominees listed below
contrary below)
Alvin J. Glasky, Ph.D., Mark J. Glasky,
Carol O'Cleireacain, Ph.D. and Joseph Rubinfeld, Ph.D.
(INSTRUCTIONS: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below.)
2. Proposal to approve the issuance of common stock pursuant to conversion
rights under a preferred stock financing transaction:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the issuance of common stock pursuant to a private equity
line of credit agreement:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve an increase in the number of shares of common stock
issuable under the 1997 Stock Incentive Plan by 750,000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Proposal to ratify the selection of Arthur Andersen LLP as independent public
accountants for the Company:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This Proxy when properly executed will be voted in the manner directed above.
If no direction is given, this proxy will be voted FOR the election of the
nominees listed above and FOR each of proposals 2, 3, 4 and 5.
IMPORTANT -- PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
31
(continued from reverse side)
This Proxy confers discretionary authority to vote on any other matters as
may properly come before the meeting. The undersigned acknowledges receipt of
the Notice of Annual Meeting of Stockholders and the Proxy Statement (with all
enclosures and attachments) dated April 26, 1999.
[ ] I/we plan to attend the Annual Meeting of Stockholders.
Dated: ____________________________, 1999
_________________________________________
Signature
_________________________________________
Signature if held jointly
Please date this Proxy and sign it
exactly as your name or names appear
hereon. When shares are held by two or
more persons, both should sign. When
signing as an attorney, executor,
administrator, trustee or guardian,
please give full title as such. If shares
are held by a corporation, please sign in
full corporate name by the President or
other authorized officer. If shares are
held by a partnership, please sign in
partnership name by an authorized person.
Please mark, sign, date and return this Proxy promptly
using the enclosed envelope.
If your address is incorrectly shown, please print changes.