1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
LIDAK PHARMACEUTICALS
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
2
LIDAK PHARMACEUTICALS
11077 NORTH TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 16, 1996
------------------------
The Annual Meeting of Shareholders of LIDAK Pharmaceuticals (the "Company")
will be held at the offices of the Company at 11077 North Torrey Pines Road, La
Jolla, California 92037 on Saturday, March 16, 1996, at 9:00 a.m. for the
following purposes:
1. To elect three (3) directors of the Company to hold office until the
1998 Annual Meeting of Shareholders.
2. To approve an amendment to the Company's 1994 Stock Option Plan, as
amended, to provide for an increase in the number of shares of Common
Stock authorized for issuance under such plan by 250,000 shares.
3. To ratify the selection of Deloitte & Touche LLP as independent auditors
for the fiscal year ending September 30, 1996.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement of the meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on January 22, 1996
will be entitled to vote at the meeting. Each of these shareholders is cordially
invited to be present and vote at the meeting in person.
By Order of the Board of Directors
MICHAEL H. LORBER
Secretary
San Diego, California
January 26, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY. THIS IS IMPORTANT BECAUSE A MAJORITY
OF THE SHARES MUST BE REPRESENTED, EITHER IN PERSON OR BY PROXY, TO CONSTITUTE A
QUORUM. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN THOUGH YOU SEND
IN YOUR PROXY NOW.
3
LIDAK PHARMACEUTICALS
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 16, 1996
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION................................................................... 1
SHARES OUTSTANDING AND VOTING RIGHTS.................................................. 1
PROPOSAL ONE
ELECTION OF DIRECTORS............................................................... 2
PROPOSAL TWO
AMENDMENT TO 1994 STOCK OPTION PLAN................................................. 5
PROPOSAL THREE
RATIFICATION OF INDEPENDENT AUDITORS................................................ 9
OTHER BUSINESS........................................................................ 17
4
LIDAK PHARMACEUTICALS
11077 NORTH TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 16, 1996
------------------------
GENERAL INFORMATION
Your proxy in the enclosed form is solicited by the directors of LIDAK
Pharmaceuticals, a California corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held on March 16, 1996 (the "Meeting") for the
purposes set forth in the accompanying notice and at any adjournment or
postponement of that meeting. The mailing of this Proxy Statement and the
accompanying form of proxy to shareholders of the Company is expected to
commence on or about February 13, 1996.
The shares represented by any proxy in the enclosed form will be voted in
accordance with the instructions given on the proxy if the proxy is properly
executed and is received by the Company prior to the close of voting at the
Meeting or any adjournment or postponement thereof. Proxies received by the
Company on which no contrary instruction has been given will be voted FOR the
election of Class I Directors nominated by management, FOR approval of an
amendment to the Company's 1994 Stock Option Plan to increase the number of
options and FOR ratification of the selection of independent auditors for the
fiscal year ending September 30, 1996. A shareholder giving a proxy has the
power to revoke it at any time before it is exercised. A proxy may be revoked by
filing with the Secretary of the Company an instrument revoking it or a duly
executed proxy bearing a later date. The powers of the proxy holders will be
suspended if the person executing the proxy is present at the meeting and votes
in person.
Copies of solicitation material will be furnished to brokerage houses,
fiduciaries, and custodians holding shares in their names which are beneficially
owned by others ("record holders") to forward to such beneficial owners. In
addition, the Company may reimburse such persons for their cost of forwarding
the solicitation material to such beneficial owners. Original solicitation of
proxies by mail may be supplemented, if deemed desirable or necessary, by one or
more of telephone, telegram, facsimile, or personal solicitation by directors,
officers, or employees of the Company. No additional compensation will be paid
for any such services. The Company reserves the right, if deemed desirable or
necessary, to retain a proxy solicitation firm to deliver soliciting materials
to record holders for distribution by them to their principals and to assist the
Company in collecting proxies from such holders. The costs of these services,
exclusive of out-of-pocket costs, is not expected to exceed $7,500. Except as
described above, the Company does not intend to solicit proxies other than by
mail.
SHARES OUTSTANDING AND VOTING RIGHTS
Only holders of shares of Class A Common Stock ("Class A Shares") and Class
B Common Stock ("Class B Shares") of record as at the close of business on
January 22, 1996 are entitled to vote at the meeting. On the record date there
were issued and outstanding 30,476,732 Class A Shares and 283,000 Class B Shares
(collectively, the "Shares"). Each Class A Share is entitled to one vote and
each Class B Share is entitled to five votes on all matters to be voted upon.
The presence, in person or by proxy duly authorized, of the holders of a
majority of the voting shares will constitute a quorum for the transaction of
business at the Annual Meeting and any continuation or adjournment thereof.
Broker non-votes (i.e. shares held by broker or nominee which are represented at
the Annual Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular purpose) will be counted in determining
whether a quorum is present at the Annual Meeting. Directors are elected by a
plurality of votes of the shares present in person or represented
5
by proxy at the Annual Meeting. Any shares not voted (whether by abstention,
broker non-votes or otherwise) will have no impact on the election of directors,
except to the extent that the failure to vote for an individual results in
another individual receiving a larger portion of votes. The other proposals
submitted to the shareholders in the enclosed proxy must be approved by the vote
of the holders of a majority of the votes of the shares of the Company
represented in person or by proxy and entitled to vote at the Annual Meeting. In
determining whether such proposals have been approved, abstentions and broker
non-votes are not counted as votes for or against the proposal.
Your execution of the enclosed proxy will not affect your right as a
shareholder to attend the Annual Meeting and to vote in person. Any shareholder
giving a proxy has a right to revoke it at any time by either (i) a later-dated
proxy, (ii) a written revocation sent to and received by the Secretary of the
Company prior to the Annual Meeting, or (iii) attendance at the Annual Meeting
and voting in person.
PROPOSAL ONE
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
The By-laws of the Company provide that the Board of Directors shall be
divided into two classes as nearly equal in number as reasonably possible with
any overage allocated in the discretion of the Board of Directors. The current
number of directors (which may vary between four and seven) has been fixed at
seven by action of the Board of Directors in accordance with the By-Laws. Each
class of directors has a two-year term.
Three of the Company's seven directors (the "Class I Directors") are to be
elected at this 1996 Annual Meeting. The remaining four directors (the "Class II
Directors") are to be elected at the 1997 Annual Meeting. The three current
Class I Directors of the Company (each of whom have been nominated) are Messrs.
Agersborg, Jenkins and Samuels. The four current Class II Directors of the
Company are Messrs. Katz, Olson, Paracka and Towle.
Each Class I Director nominee elected at the 1996 Annual Meeting will hold
office until the 1998 Annual Meeting, and until his successor is elected and
qualified, unless he resigns or his seat on the Board becomes vacant due to his
death, removal or other cause in accordance with the By-Laws of the Company.
Management knows of no reason why any of these nominees would be unable or
unwilling to serve; but if any nominee should be unable or unwilling to serve,
the proxies will be voted for the election of such other person(s) for the
office of director as management may recommend in the place of such nominee. THE
BOARD UNANIMOUSLY RECOMMENDS VOTING "FOR" THE THREE NOMINEES LISTED BELOW.
INFORMATION REGARDING NOMINEES FOR A TWO-YEAR TERM EXPIRING AT THE 1998 ANNUAL
MEETING
The following table sets forth the names, ages, principal occupations for
the periods indicated and other directorships of each of the current Class I
Director nominees at the 1996 Annual Meeting each of whom are currently
directors of the Company.
PRINCIPAL OCCUPATION FOR THE CURRENT
PAST FIVE YEARS AND OTHER DIRECTOR TERM
NAME AGE DIRECTORSHIPS SINCE ENDS
- ----------------------------------- --- ----------------------------------- -------- -------
Helmer P.K. Agersborg, Jr. 67 Pharmaceutical industry consultant October 1996
since 1990. Affiliated with Wyeth 1992
Laboratories and Wyeth-Ayerst
Research, subsidiaries of American
Home Products from 1958-1990. From
1987-1990, served as President of
Wyeth-Ayerst Research. Also
director of Afferon, Inc.,
Pharmedic, Inc. and Collagenex,
Inc.
2
6
PRINCIPAL OCCUPATION FOR THE CURRENT
PAST FIVE YEARS AND OTHER DIRECTOR TERM
NAME AGE DIRECTORSHIPS SINCE ENDS
- ----------------------------------- --- ----------------------------------- -------- -------
William N. Jenkins 67 Retired, having served as an August 1996
attorney specializing in corporate 1988
and securities law for more than 30
years. Of counsel to the law firm
of Musick, Peeler & Garrett (1990
to January 1992) and partner in the
law firm of Jenkins & Perry (1961
to 1989).
Stuart A. Samuels 54 Pharmaceutical industry consultant April 1996
since 1990. Affiliated with the 1992
Rorer Group from 1986 to 1990 where
he held positions of Senior Vice
President, Rorer Pharmaceuticals
Corporation, and General Manager of
Rorer Pharmaceuticals and President
of Dermik Laboratories, both
divisions of Rorer Pharmaceuticals
Corporation.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH NOMINEE.
INFORMATION REGARDING CLASS II DIRECTORS CONTINUING IN OFFICE UNTIL THE 1997
ANNUAL MEETING
PRINCIPAL OCCUPATION FOR THE CURRENT
PAST FIVE YEARS AND OTHER DIRECTOR TERM
NAME AGE DIRECTORSHIPS SINCE ENDS
- ----------------------------------- --- ----------------------------------- -------- -------
David H. Katz 52 Chief Executive Officer of the August 1997
Company since its inception in 1988
August 1988 and President from
inception through October 1989 and
from March 1992 to the present.
Founder of Medical Biology
Institute, serving as its President
and Chief Executive Officer since
its inception in 1981 and as a
director since August 1990. Founder
of Quidel Corporation, a San
Diego-based biotechnology company
("Quidel"), serving as its Chairman
of the Board and Chief Executive
Officer from inception in 1981
through March 1985, and as its
Chairman of the Board and Chief
Scientific Officer through March
1988. Chairman of the Department of
Cellular and Developmental
Immunology at Scripps Clinic and
Research Foundation from 1976 until
1981.
Kenneth E. Olson 59 Chairman of the Board of Directors August 1997
(July 1984-present) and Chief 1988
Executive Officer (December
1990-January 1996) of Proxima
Corporation (formerly Computer
Accessories Corporation), a
manufacturer of liquid crystal
display projection systems for
professional desktop computers.
3
7
PRINCIPAL OCCUPATION FOR THE CURRENT
PAST FIVE YEARS AND OTHER DIRECTOR TERM
NAME AGE DIRECTORSHIPS SINCE ENDS
- ----------------------------------- --- ----------------------------------- -------- -------
Daniel J. Paracka 54 Chairman of the Board of the March 1997
Company since April 1993. Senior 1992
Consultant, The Rand Group, Rome,
Georgia (April 1991 to present);
Adjunct Professor, Shorter College,
Rome, Georgia; Vice President and
Chief Financial Officer (Jan. 1986
to May 1990) and Senior Advisor
(May 1990 to March 1991),
Rhone-Poulenc Rorer, Inc.
Sidney N. Towle 51 Registered representative since August 1997
June 1990 and, since January 1994, 1998
a Vice President of H.C. Wainwright
Co., Inc. Registered representative
for Homans, McGraw, Trull, Valeo
and Company, Inc. from December
1988 until June 1990. Prior
thereto, Vice Chairman of J.T.
Moran Financial Corp. ("Moran").
Founded Buttonwood Securities
Corporation of Massachusetts in
1974, remaining Chief Executive
Officer until it was acquired by
Moran in 1988. Vice President of
John Magee, Inc., a wholly-owned
subsidiary of Moran from February
1977 until October 1988.
There are no family relationships among any of the directors and officers.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended September 30, 1995 ("Fiscal 1995"), the Board
of Directors held 6 regular meetings and 2 special meetings. Each director
attended at least 75% of the meetings held during Fiscal 1995 which occurred on
or after the initiation of their term as a director. Each director who served on
the Compensation and Stock Option Committee also attended at least 75% of the
Committee meetings held during Fiscal 1995 which occurred on or after the
initiation of his term as a director.
During Fiscal 1995 the Board of Directors of the Company had an Executive
Committee, an Audit Committee, a Technology Review Committee and an Executive
Compensation and Stock Option Committee. The Company does not have a Nominating
Committee nor a committee that performs equivalent functions of a Nominating
Committee.
The Executive Committee consists of Dr. Katz and Messrs. Jenkins and Olson.
The Executive Committee has all of the authority of the Board of Directors to
act on any matter except with respect to (i) the approval of any action for
which shareholder approval is required under the California General Corporation
Law; (ii) the filling of vacancies on the Board of Directors or on any committee
thereof; (iii) the fixing of compensation for directors; (iv) the adoption,
amendment or repeal of any bylaw; (v) the amendment or appeal of any resolution
of the Board of Directors which by its terms is not so amendable or repealable;
(vi) any distribution to shareholders except at a rate or within a price range
determined by the Board of Directors; and (vii) the appointment of other
committees of the Board of Directors or the members thereof. No meetings of the
Executive Committee were held during Fiscal 1995.
The Audit Committee oversees the Company's accounting and financial
reporting policies and internal controls, reviews annual audit reports and
management letters and makes recommendations to the Board of
4
8
Directors regarding appointment of independent auditors. The Audit Committee
consists of Messrs. Jenkins and Paracka. The Audit Committee held 1 meeting
during Fiscal 1995.
The Executive Compensation and Stock Option Committee consists of Messrs.
Paracka, Olson and Towle. The principal functions of this committee are to
recommend to the Board the compensation of directors and officers of the
Company, to oversee the administration of the Company's stock option plans and
to perform such other duties regarding compensation for employees and
consultants as the Board may delegate from time to time. See also "Compensation
Committee Report." The Executive Compensation and Stock Option Committee held 2
meetings during Fiscal 1995.
The Technology Review Committee consists of Messrs. Agersborg, Paracka and
Samuels. The Technology Review Committee monitors the status of the Company's
research and product development efforts and reviews the commercial potential of
existing and new product opportunities. There were no Technology Review
Committee meetings held during Fiscal 1995.
PROPOSAL TWO
AMENDMENT TO 1994 STOCK OPTION PLAN
(ITEM 2 ON THE PROXY CARD)
On January 13, 1996, the Board of Directors approved an amendment to the
Company's 1994 Stock Option Plan (the "Plan") to increase from 1,100,000 to
1,350,000 the number of shares of Class A Common Stock reserved for issuance
with respect to options granted under the Plan. This amendment is being
presented to shareholders for their approval.
Currently there are 1,100,000 shares of Class A Common Stock reserved for
issuance with respect to options granted under the Plan, of which 632,252
options have been granted and 467,748 options are available for grant as of
January 12, 1996.
The Plan became effective upon its approval by the Board of Directors on
January 14, 1994, subject to shareholder approval. The shareholders approved
750,000 shares of Class A Common Stock for issuance under the Plan on March 12,
1994. The shareholders approved an additional 350,000 shares of Class A Common
Stock for issuance under the Plan on March 18, 1995. The general purpose of the
Plan is to assist the Company in the recruitment, retention and motivation of
employees, directors and independent contractors who are in a position to make
contributions to the Company's progress. The Plan offers a significant incentive
to the employees, directors and independent contractors of the Company by
enabling such persons to acquire the Company's Common Stock, thereby increasing
their proprietary interest in the growth and success of the Company.
ADMINISTRATION
The Plan is administered by the Stock Option Committee of the Board of
Directors (the "Option Committee") composed of at least two "disinterested"
members (defined below) of the Board of Directors who are not also employees of
the Company, if available. Subject to the limitations set forth in the Plan, the
Option Committee has the authority to determine to whom options will be granted
(including initial grants to incoming directors), the term during which an
option may be exercised, and at the rate at which the options may be exercised.
Pursuant to the Plan, a member of the Board of Directors is "disinterested" if
he/she is not, during the one year prior to service as an administrator under
the Plan, granted or awarded stock pursuant to the terms of the Plan (or any
other plan of the Company or a Subsidiary), except that participation in a
formula plan meeting the conditions of Rule 16b-3(c)(2)(ii) under the Exchange
Act shall not disqualify an administrator from administering the Plan.
ELIGIBILITY AND SHARES SUBJECT TO THE PLAN
If this proposal is adopted, the aggregate number of shares of the
Company's Class A Common Stock that shall be available for issuance under the
Plan shall be increased from 1,100,000 to 1,350,000.
5
9
The Plan provides for the grant of both incentive stock options ("ISOs")
intended to qualify as such under section 422(b) of the Internal Revenue Code,
as amended, and nonstatutory stock options ("NSOs"). ISOs may be granted only to
employees (including officers and directors who are also employees) of the
Company. NSOs may be granted to employees (including officers and directors who
are also employees), directors and independent contractors of the Company. If
any options granted under the Plan for any reason expire or are canceled or
otherwise terminated without having been exercised in full, the shares allocable
to the unexercised portion of such options again become available for the Plan.
The Plan provides for an automatic NSO grant of 10,000 shares each year to
each "disinterested" director who is not also an employee of the Company for so
long as such person serves on the Board of Directors. The exercise price of such
options is equal to the fair market value on the date of the grant, and such
options shall have a ten-year term.
Options granted pursuant to the Plan other than the above described
automatic option grants to directors will vest at the times determined by the
Option Committee (generally over a three-year period). The automatic option
grants to directors shall vest ratably over a three-year period whereby one
third of the options granted shall vest on each of the first, second, and third
anniversaries of the date of grant, respectively.
The maximum term of each option granted under the Plan is 10 years. Stock
options granted under the Plan must be exercised by the optionee during the
earlier of his or her term or within 90 days after termination of the optionee's
employment, except that the period may be extended on certain events, including
death and termination due to disability, but not beyond the maximum 10-year
term.
The exercise price of shares of Class A Common Stock subject to options
under the Plan must not be less than the fair market value of the Class A Common
Stock on the date of the grant. In addition to payment in cash, the Plan permits
an optionee to pay the exercise price of an option by delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell the optionee's shares and deliver all or a part
of the sale proceeds to the Company in payment of all or part of the exercise
price and any withholding taxes ("exercise/sale" directions) or by delivery of
an irrevocable direction to pledge the optionee's shares to a securities broker
or lender approved by the Company as security for a loan and to deliver all or
part of the loan proceeds to the Company in payment of all or part of the
exercise price and any withholding taxes ("exercise/pledge" directions).
Based upon the closing price of the Company's Class A Common Stock on the
NASDAQ National Market System on January 22, 1996 ($5.1875), the maximum
aggregate value of the underlying securities to be issued under the Plan, if the
Plan is amended as proposed, is $7,003,125. The actual value of the securities
to be issued will be determined by the fair market value of the underlying
securities on the date(s) such securities are issued.
NONTRANSFERABILITY
During an Optionee's lifetime, such Optionee's Option(s) shall be
exercisable only by him or her and shall not be transferable. In the event of an
Optionee's death, such Optionee's Option(s) shall not be transferable other than
by will or by the laws of descent and distribution.
DURATION, AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the Plan at any time, except that
any amendment, suspension or termination shall not affect any option previously
granted. Any amendment of the Plan, however, which increases the number of
shares available for issuance, materially changes the class of persons who are
eligible for the grant of ISOs or, if required by Rule 16b-3 (or any successor
to such rule) under the Securities Exchange Act of 1934, as amended, would
materially increase the benefits accruing to participants under the Plan or
would materially modify the requirement as to eligibility for participation in
the Plan, shall be subject to approval of the Company's shareholders.
Shareholder approval is not required for any other amendment of the Plan. Unless
sooner terminated by the Board of Directors, the Plan will terminate on
6
10
January 14, 2004, and no further options may be granted or stock sold pursuant
to the Plan following the termination date.
EFFECT OF CERTAIN CORPORATE EVENTS
Automatic vesting of all shares underlying employee stock options granted
pursuant to the Plan will occur on or following (1) the first purchase of shares
of the Company's Common Stock pursuant to a tender offer or exchange offer
(other than an offer by the Company) for all, or any part of, the Company's
Common Stock, (2) approval by the Company's shareholders of a merger in which
the Company does not survive as an independent, publicly owned corporation
(other than a merger that leaves the shareholders of the Company with
substantially the same ownership interest in the new corporation), a
consolidation, or a sale or exchange or other disposition of all or
substantially all the Company's assets, or (3) an acquisition of voting
securities by any person or group which theretofore did not beneficially own
more than 50% of the voting power of all outstanding voting securities of the
Company, if such acquisition results in such person or group owning beneficially
securities representing more than 50% of the voting power of the Company's
outstanding securities. A change in the relative beneficial ownership under (2)
by reason of a repurchase by the Company of its own securities will be
disregarded.
In the event of a subdivision of the outstanding Common Stock or a
combination or consolidation of the outstanding Common Stock (by
reclassification of otherwise) into a lesser number of shares, or a similar
occurrence, or declaration of a divided payable in Common Stock or, if in an
amount that has a material effect on the price of the shares, in cash, the
Option Committee will make adjustments in the number and/or exercise price of
options and/or the number of shares, in cash, the Option Committee will make
adjustments in the number and/or exercise price of options and/or the number of
shares available under the Plan, as appropriate.
Subject to the accelerated vesting provisions described above, in the event
of a merger or other reorganization, outstanding options will be subject to the
agreement of merger or reorganization. Such agreement will provide for the
assumption of outstanding options by the surviving corporation or its parent,
for their continuation by the Company (if the Company is the surviving
corporation), for payment of a cash settlement equal to the difference between
the amount to be paid for one share under the agreement of merger or
reorganization and the exercise price for each option, or for the acceleration
of the exercisability of each option followed by the cancellation of options not
exercised, in all cases without the optionee's consent.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options
Under federal income tax law, the granting of ISOs under the Plan is not a
taxable event for the Company or the recipient. Generally, the exercise of an
ISO also will not result in any federal income tax consequences to the Company
or the recipient except in circumstances where the alternative minimum tax
applies. In calculating alternative minimum taxable income ("AMTI"), the excess
of the fair market value of the stock acquired upon exercise of the incentive
stock option, generally determined at the time of exercise, over the amount paid
for the stock by the taxpayer is included. However, if the shares are disposed
of in a disqualifying disposition, as defined below, in the year of exercise,
the maximum amount included as AMTI is the gain on the disposition of the
shares. Under current law, a taxpayer potentially subject to the alternative
minimum tax effectively pays the greater of (a) 26 percent (28 percent if AMTI
exceeds $175,000 or $87,500 for married taxpayers filing separately) of the
excess of the taxpayer's alternative minimum taxable income over $45,000, if the
taxpayer files a joint return (or $33,750 if the taxpayer files a separate
return) or (b) the taxpayer's regular income tax liability for the year.
When the recipient disposes of ISO shares after the shares have been held
at least two years from the date of grant of the ISO and one year after its
exercise ("ISO holding period") the recipient will recognize capital gain or
loss equal to the difference between the basis in the shares (generally, the
exercise price) and the amount received in such disposition. If the recipient
disposes of the ISO shares prior to the expiration of the ISO holding period, a
disqualifying transaction is deemed to have occurred and the recipient must
7
11
recognize compensation (ordinary) income equal to the difference between the ISO
exercise price and the stock's fair market value on the date of exercise. The
compensation income is then added to the basis of the ISO shares for purposes of
calculating gain or loss on the disposition of the ISO shares. The Company is
entitled to take a deduction for the compensation income recognized on the
disqualifying disposition if it has properly tracked the disqualifying
transaction.
Non-Qualified Stock Options
There will be no federal income tax consequences to the Company or the
recipient as a result of a grant of an NSO under the Plan. Upon exercise of such
an option, the recipient will generally recognize ordinary income in an amount
equal to the excess of the fair market value of the shares of stock acquired at
the time of exercise over the exercise price. Upon the subsequent disposition of
the shares, the optionee will realize a capital gain or loss, depending on
whether the selling price exceeds the fair market value of the shares on the
date of exercise. The optionee's holding period in the shares, for capital gains
and losses purposes, begins on the date of exercise.
In general, the Company will be entitled to a compensation expense
deduction in connection with the exercise of an NSO granted under the Plan for
any amounts includable by the recipient as ordinary income at the time the
recipient is taxed on such amounts. This compensation is subject to withholding
and the Company reports the income on a Form W-2 or 1099.
Section 162(m) of the Internal Revenue Code denies a deduction for taxable
compensation paid by a public company to its chief executive officer or any of
its other four (4) highest paid executives in excess of $1 million per year.
Certain performance based compensation is not included in calculating the $1
million threshold. Stock options may qualify for this exclusion if the plan
under which they are granted meets certain conditions. As presently
administered, the Plan does not satisfy these conditions. Accordingly, the
Company may not be able to claim a tax deduction for certain exercises of NSOs
or disqualifying dispositions of ISOs by any of the Company's top five (5)
executives to the extent the income from such exercises or dispositions,
combined with the executive's other taxable compensation for the year, exceeds
$1 million.
OTHER TAX CONSEQUENCES
The foregoing discussion is intended to be a general summary only of the
federal income tax aspects of options granted under the Plan; tax consequences
may vary depending on the particular circumstances at hand. In addition,
administrative and judicial interpretations of the application of the federal
income tax laws are subject to change. Furthermore, no information is given with
respect to state or local taxes that may be applicable. Participants in the Plan
who are residents of or are employed in a country other than the United States
may be subject to taxation in accordance with the tax laws of that particular
country in addition to or in lieu of United States federal income taxes.
EXEMPTION FROM SECTION 16 OF THE EXCHANGE ACT
Section 16 of the Exchange Act establishes insider liability for profits
realized from any "short-swing" trading transaction (i.e., purchase and sale, or
sale and purchase within less than six months). Grants of options are generally
viewed as purchases of the underlying securities for purposes of Section 16.
Rule 16b-3 of the Exchange Act provides that transactions by officers and
directors pursuant to an employee stock option plan, such as option grants, are
exempt from Section 16 liability provided that the plan meets certain
requirements, one of which includes the requirement that the plan be
administered by "disinterested" administrators. Grants or awards of options made
to the administrators pursuant to qualifying "formula awards" do not preclude
the administrator from being "disinterested."
Rule 16b-3(c)(2)(i) of the Exchange Act generally defines "disinterested"
administration to mean that administrators of the plan do not receive
discretionary grants or awards under the plan during the one year prior to
his/her service as an administrator or while serving in that capacity under the
plan. Rule 16b-3(c)(2)(i) also states that administrators are "disinterested" if
the plan provides for grants or awards to administrators in accordance with the
"formula awards" specified in Rule 16b-3(c)(2)(ii). Such
8
12
formula awards use objective criteria such as earnings of the issuer, value of
the securities, years of service, job classification, and compensation levels
for granting options to officers and/or directors, and stock option plans. Rule
16b-3(c)(2)(ii) also provides that plan containing such formula awards
provisions shall not be amended more than once every six months.
The Plan is structured to comply with the above exemption requirements of
Rule 16b-3 in that Section 3 of the Plan provides that the Plan shall be
administered by directors who are either "disinterested" within the meaning of
Rule 16b-3(c)(2)(k) or have received formula award grants (or otherwise have
received exempt grants).
VOTE REQUIRED
An affirmative vote by the holders of a majority of the outstanding voting
shares of the Company present in person or represented by proxy at the meeting
is required for approval of the Amendment to the Plan. THE BOARD UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE PLAN.
PROPOSAL THREE
RATIFICATION OF INDEPENDENT AUDITORS
(ITEM 3 ON THE PROXY CARD)
The Board of Directors has selected Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending September 30, 1996, and has
further directed that management submit the selection of independent auditors
for ratification by the shareholders at the Annual Meeting. Deloitte & Touche
LLP has audited the Company's financial statements annually since the Company's
inception. Its representatives are expected to be present at the Annual Meeting,
will have the opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions.
Shareholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors is not required by the Company's By-Laws or
otherwise. The Board of Directors is submitting the selection of Deloitte &
Touche LLP to the shareholders for ratification as a matter of good corporate
practice. In the event the shareholders fail to ratify the selection, the Board
of Directors will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Board of Directors in its discretion may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors determines that such a change could be in the
best interests of the Company and its shareholders.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP TO SERVE AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE YEAR ENDING SEPTEMBER 30, 1996.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's voting shares (Class A Common and Class B Common) as
of January 3, 1996 by (i) each director, nominee, and named executive officer of
the Company; (ii) all current executive officers and directors of the Company as
a group; and (iii) all persons known by the Company to own beneficially 5% or
more of the outstanding shares or voting power of the Company's voting
securities. The table is based upon information supplied by directors, officers
and principal shareholders. Unless otherwise indicated, each of the listed
persons has sole
9
13
voting and sole investment power with respect to the Shares beneficially owned,
subject to community property laws where applicable.
AMOUNT AND PERCENT OF
NATURE OF TOTAL
NAME AND ADDRESS OF BENEFICIAL BENEFICIAL PERCENT OF VOTING
TITLE OF CLASS OWNER OR IDENTITY OF GROUP(1) OWNERSHIP(2) CLASS(2) POWER(3)
- --------------------- ------------------------------- ------------ ---------- ----------
Class A Common Stock David H. Katz(4)(5) 3,385,191 10.31% 17.92%
Class B Common Stock 619,000 92.66%
Class A Common Stock William N. Jenkins(6)(7) 308,546 * 1.21%
Class B Common Stock 16,000 5.35%
Class A Common Stock Kenneth E. Olson(8)(9) 184,946 * *
Class B Common Stock 16,000 5.35%
Class A Common Stock Daniel J. Paracka(10) 26,546 * *
Class B Common Stock -0- -0-
Class A Common Stock Stuart A. Samuels(11) 46,546 * *
Class B Common Stock -0- -0-
Class A Common Stock Sidney N. Towle, Jr.(12) 158,546 * *
Class B Common Stock -0- -0-
Class A Common Stock Helmer P.K. Agersborg, Jr.(13) 41,546 * *
Class B Common Stock -0- -0-
Class A Common Stock Michael H. Lorber(14) 301,000 * *
Class B Common Stock -0- -0-
Class A Common Stock Timothy R. Russell(15) 149,792 * *
Class B Common Stock -0- -0-
Class A Common Stock All officers and directors as a 4,602,659 13.55% 21.09%
group
Class B Common Stock (10 persons)(16)(17) 651,000 93.00%
- ---------------
* Percentage of shares beneficially owned does not exceed 1%.
(1) C/O LIDAK Pharmaceuticals, 11077 North Torrey Pines Road, La Jolla,
California 92037.
(2) Based upon 30,470,132 shares of Class A Common Stock and 283,000 shares of
Class B Common Stock outstanding as of January 3, 1996, plus any shares of
Common Stock under options and warrants or subject to conversion rights of
the particular individual or, in the case of all directors and executive
officers, as a group. Includes all shares of Common Stock under options,
warrants, or other conversion rights exercisable or convertible within 60
days.
(3) Percentage of voting power is based upon total cumulative voting power of
Class A Common Stock and Class B Common Stock combined as of January 3,
1996. Each share of Class A Common Stock entitles the holder to one vote
per share on matters to be voted on by shareholders; each share of Class B
Common Stock entitles the holder to five votes per share. The percentage
ownership and voting power for each shareholder is calculated by assuming
the exercise or conversion of all warrants, options exercisable within 60
days and convertible securities held by such holder and the nonexercise and
nonconversion of all other outstanding warrants, options and convertible
securities.
(4) Includes options to purchase 1,827,000 shares of Class A Common Stock and
480,006 shares of Class A Common Stock issuable upon exercise of Class D
Warrants. Also includes options to purchase 13,196 shares of Class A Common
Stock and options held by a member of his family to purchase 37,986 shares
of Class A Common Stock. Does not include options to purchase 36,804 shares
of Class A Common Stock and options to purchase 5,014 shares of Class A
Common Stock held by a member of his family which are not exercisable
within 60 days.
10
14
(5) Includes options to purchase 375,000 shares of Class B Common Stock granted
under Dr. Katz' employment agreement and options to purchase 10,000 shares
of Class B Common Stock held by a member of his family.
(6) Includes options to purchase 248,546 shares of Class A Common Stock. Does
not include options to purchase 18,454 shares of Class A Common Stock which
are not exercisable within 60 days.
(7) Includes options to purchase 16,000 shares of Class B Common Stock.
(8) Includes options to purchase 158,546 shares of Class A Common Stock. Does
not include options to purchase 18,454 shares of Class A Common Stock which
are not exercisable within 60 days.
(9) Includes options to purchase 16,000 shares of Class B Common Stock.
(10) Includes options to purchase 26,546 shares of Class A Common Stock. Does
not include options to purchase 18,454 shares of Class A Common Stock which
are not exercisable within 60 days.
(11) Includes options to purchase 46,546 shares of Class A Common Stock. Does
not include options to purchase 18,454 shares of Class A Common Stock which
are not exercisable within 60 days.
(12) Includes options to purchase 158,546 shares of Class A Common Stock. Does
not include options to purchase 18,454 shares of Class A Common Stock which
are not exercisable within 60 days.
(13) Includes options to purchase 41,546 shares of Class A Common Stock. Does
not include options to purchase 18,454 shares of Class A Common Stock which
are not exercisable within 60 days.
(14) Includes options to purchase 300,000 shares of Class A Common Stock.
(15) Includes options to purchase 149,792 shares of Class A Common Stock. Does
not include options to purchase 20,208 shares of Class A Common Stock which
are not exercisable within 60 days.
(16) Includes 1,114,403 shares of Class A Common Stock and options and warrants
to purchase an aggregate of 3,488,256 shares of Class A Common Stock. Does
not include options to purchase 272,750 shares of Class A Common Stock
which are not exercisable within 60 days.
(17) Includes 234,000 shares of Class B Common Stock and options to purchase
417,000 shares of Class B Common Stock.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representation that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent shareholders were complied
with.
EXECUTIVE COMPENSATION
Directors who are not otherwise employed by the Company ("Outside
Directors"), other than Mr. Paracka, are paid a retainer of $500 per month. Mr.
Paracka, Chairman of the Board of Directors, receives a monthly retainer of
$2,500 per month. All Outside Directors receive $1,500 for attendance at each
regular meeting of directors, $1,000 for attendance at each meeting of the
Technology Review Committee and $250 for attendance at each special meeting of
directors and meetings of committees of the directors other than the Technology
Review Committee. Directors who are also employees (currently only Dr. Katz)
receive no compensation for services as a board member.
In March 1994, the shareholders of the Company approved the Company's 1994
Stock Option Plan (the "1994 Option Plan"). The Company's 1994 Option Plan
provides that non-employee directors are automatically granted options
exercisable into 10,000 shares of the Company's Common Stock on the date of the
11
15
Company's Annual Meeting. The options granted at such time are exercisable at
fair market value on the date of issuance, vest over three years and have a term
of ten years. Unless sooner terminated by the Board, the 1994 Option Plan
expires on January 14, 2004. The Board may amend, suspend, modify or terminate
the 1994 Option Plan, but may not without the prior written approval of
shareholders make any amendments which (i) materially increases the number of
shares available for issuance under the 1994 Option Plan (except as expressly
permitted); (ii) materially changes the class of person who are eligible for the
grant of incentive stock options or (iii) if required by Rule 16b-3 (or any
successor) under the Securities Exchange Act of 1934, as amended, would
materially increase the benefits accruing to participants under the plan or
would materially modify the requirements as to eligibility for participation in
the plan.
In March 1995, Messrs. Agersborg, Jenkins, Olson, Paracka, Samuels and
Towle each received stock options exercisable into 10,000 shares of Common Stock
at an exercise price of $2.9375 per share pursuant to the 1994 Option Plan (the
"1995 Director Grants"). At the same time, Dr. Katz (who was ineligible for such
director grant because of his status as an employee) received options
exercisable into 30,000 shares of Common Stock under the 1994 Option Plan at the
same exercise price.
COMPENSATION OF OFFICERS
SUMMARY OF COMPENSATION
The following executive compensation disclosures reflect all compensation
awarded to, earned by or paid to the named executive officers and directors of
the Company for the fiscal years ended September 30, 1995, 1994, and 1993. The
named executive officers ("Executive Officers") are the Company's Chief
Executive Officer ("CEO"), regardless of compensation level, and the other
executive officers who received in excess of $100,000 in total annual salary and
bonus for Fiscal 1995.
SUMMARY OF COMPENSATION TABLE
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ----------------------- -------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($)(2) ($) ($) ($)(3) (#)(4) ($)(6) ($)
------------------ ---- ------- ------- ------------ ---------- ---------- ------- ------------
David H. Katz(1)..................... 1995 228,000 -- -- -- 30,000 -- --
President and Chief 1994 219,817 -- -- -- 20,000 -- --
Executive Officer 1993 208,491 -- -- -- 1,827,000(5) -- --
Timothy R. Russell................... 1995 161,949 -- -- -- 15,000 -- --
Vice President of 1994 157,269 -- -- -- 70,000 -- --
Business Development 1993 122,310(7) -- -- -- 10,000(5) -- --
and Licensing
Bruce W. Nuss(8)..................... 1995 121,743 -- -- -- 15,000 -- --
Vice President and 1994 7,452 -- -- -- 100,000 -- --
Chief Financial Officer
- ---------------
(1) See "Employment Contracts and Termination of Employment Agreements."
(2) Amounts shown include compensation earned and received by executive officers
that exceeded $100,000 in the fiscal year. No amounts were earned but
deferred at the election of those officers.
(3) The Company has not made any Restricted Stock Awards.
(4) The Company has not made any grants of SARs.
(5) Amounts represent options issued in 1993 which were repriced in 1994.
(6) The Company has not made any Long Term Incentive Plan ("LTIP") Payouts.
(7) The listed salary for Fiscal 1993 reflects a proration from Mr. Russell's
annual base salary of $150,000 due to a partial allocation of effort devoted
to the Company during the first six months of Fiscal 1993.
12
16
(8) Mr. Nuss served the Company as Vice President and Chief Financial Officer
from September 7, 1994 until May 15, 1995. From May 15, 1995 until October
7, 1995 Mr. Nuss held the position of Vice President. Mr. Nuss is no longer
with the Company.
STOCK OPTION GRANTS
The following table shows all individual grants of stock options to the
named executive officers during the year ended September 30, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF
OPTIONS/SARS EXERCISE APPRECIATION FOR
GRANTED TO OR BASE OPTION TERMS(3)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(2) DATE 5% 10%
- ------------------------ ------------ ----------------- --------- ---------- ------- --------
David H. Katz........... 30,000(1) 9% 2.9375 03/18/05 $55,422 $140,448
President and Chief
Executive Officer
Timothy R. Russell...... 15,000(1) 5% 2.9375 03/18/05 $27,711 $ 70,224
Vice President of
Business Development
and Licensing
Bruce W. Nuss........... 15,000(4) 5% 2.9375 03/18/05 $27,711 $ 70,224
Vice President and
Chief Financial
Officer
- ---------------
(1) Vesting may be accelerated and the options may be repriced at the discretion
of the Board of Directors. In the event of a specified corporate transaction
such as a dissolution, merger or other reorganization of the Company in
which more than 50% of the Company's stock is exchanged, vesting on such
options shall be accelerated unless the surviving corporation assumes the
options outstanding, substitutes similar rights for outstanding options, or
the options shall continue.
(2) Market price on date of grant.
(3) The potential realizable value is calculated by assuming that the stock
price on the date of grant appreciates at the indicated rate, compounded
annually, for the entire term of the option and that the option is exercised
and sold on the last day of its term at this appreciated stock price.
(4) Such options expired September 7, 1995.
OPTION EXERCISES
Set forth below is information with respect to exercises of Stock Options
by the Executive Officers during Fiscal Year 1995 and the fiscal year-end value
of all unexercised Stock Options held by such persons.
13
17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS HELD AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ----------- -------------
David H. Katz............... -- -- 2,212,351 39,649 5,451,265 73,673
Timothy R. Russell.......... -- -- 146,946 23,054 452,017 43,296
Bruce W. Nuss............... 30,650 112,669
- ---------------
(1) Based upon the closing bid price of the Company's Common Stock of $4.75
quoted on the NASDAQ National Market System on September 30, 1995.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In April 1993, the Company entered into an employment agreement with David
H. Katz, M.D. (the "1993 Employment Agreement") which replaced the prior
employment agreement between Dr. Katz and the Company dated September 9, 1988,
as amended, September 19, 1989 and October 8, 1989, respectively (the "1988
Employment Agreement"). The 1993 Employment Agreement provides that Dr. Katz's
term of employment by the Company shall be at an "at will" basis, subject to the
discretion of the Board, for an annual base salary of $207,692. Dr. Katz's
salary is reviewed by the Compensation Committee of the Board of Directors of
the Company from time to time to determine, within the Board's discretion,
whether an increase is appropriate. In March 1994, the Board increased Dr.
Katz's annual base salary to $228,000. In addition, Dr. Katz's base salary
increases or decreases in proportion to any future mutually agreed upon increase
or decrease in the percentage amount of time Dr. Katz allocates to the Company
(currently 75%) compared with MBI (currently 25%).
In the event that Dr. Katz is terminated for any reason other than cause,
Dr. Katz will receive a severance payment in the amount of his base salary. Dr.
Katz is also entitled to all benefits generally available to the Company's
employees.
The 1993 Employment Agreement further provides that, except for Dr. Katz's
involvement with MBI, Dr. Katz's services shall be exclusive to the Company. The
terms of the 1993 Employment Agreement prohibit Dr. Katz from engaging in any
other businesses or providing services of a business or commercial nature to any
other person or organization unless such activity is fully disclosed to the
Company and approved by the Company's Board of Directors.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
David H. Katz, President and CEO of the Company is also President and CEO
of MBI. In October 1988, the Company and MBI entered into a twenty-year
licensing agreement (the "MBI Agreement") which granted the Company an
exclusive, worldwide license to all existing technology of MBI and a right of
first preference to license future technology developed at MBI. The MBI
Agreement was amended in 1993 and 1994. Under the MBI Agreement, as amended, the
Company has been granted an exclusive worldwide license to all technology and
know-how of MBI which had been developed or which was under development as of
the original date of the MBI Agreement and a right of first preference to
license future technology of MBI through the year 2013 subject to restrictions,
if any, in the funding agreements by which MBI develops the technology. The
Company expects that, if rights to additional technologies developed at MBI are
acquired pursuant to right of first preference under the MBI Agreement, the
Company will assume responsibility including funding, for the commercial
development efforts including remaining research and development, clinical
testing and regulatory approvals.
The Company and MBI have also entered into agreements for the leasing of
facilities and equipment and the use of certain research and administrative
services. During the fiscal year ended September 30, 1995, the Company incurred
charges to MBI totaling $399,251 and $189,389 respectively, under these
agreements.
14
18
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Executive Compensation and Stock Option Committee (the "Committee")
recommends to the Company's Board of Directors compensation of Company directors
and officers and oversees the administration of the Company's employee stock
option plans. All decisions of the Committee relating to compensation of the
Company's executive officers are reviewed and approved by the entire Board of
Directors.
COMPENSATION POLICY
The Company's executive compensation policy is designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, its long-term growth objectives and its ability to attract and
retain qualified executive officers. The Committee attempts to achieve these
goals by integrating on an individualized basis competitive annual base salaries
with stock options through the Company's stock option plans and otherwise. The
Committee believes that cash compensation in the form of salary and bonus
provides Company executives with short term rewards for success in operations,
and that long term compensation through the award of stock options better
coordinates the objectives of management with those of the shareholders with
respect to the long term performance and success of the Company. The Committee
takes into consideration a variety of subjective and objective factors in
determining the compensation package for executive officers, including how
compensation compares to that paid by competing companies and the
responsibilities and performance by each executive and the Company as a whole.
In making its determinations, the Committee addresses the unique challenges
which are present in the biotechnology industry in which the Company competes
against a number of public and private companies with respect to attracting and
retaining executives and other key employees.
The Committee has relied heavily on the equity/option position of
executives as an important mechanism to retain and motivate executives and key
employees while at the same time aligning the interests of the executives with
the interests of the shareholders generally. The Committee believes that option
grants are instrumental in motivating employees to meet the Company's future
goals. By working to increase the Company's value, one of the Company's primary
performance goals is met and the executives are likewise compensated through
option value.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
SALARY
As discussed under "Employment Contracts and Termination of Employment
Agreements" above, the Company entered into an employment agreement with Dr.
Katz in April 1993, providing, among other things, for an annual base salary of
$207,692. In March 1994, the Board increased this base salary to $228,000.
STOCK OPTION GRANTS: OPTION REPRICING
As indicated in the table entitled "Options/SAR Grants In Last Fiscal Year"
above, Dr. Katz received options to purchase 30,000 shares of the Company's
Class A Common Stock in fiscal 1995 (the "1995 Grants"). In the view of the
Committee, the salary of and options granted to Dr. Katz and the repricing of
his options during the past year were appropriate, taking into account the
progress of the Company, particularly with respect to the clinical development
of LIDAKOL(TM) (currently in Phase 3 clinical trials).
COMPENSATION ARRANGEMENTS GENERALLY
Overall, the Committee believes the compensation arrangements for the
Company's executives serve the long term interests of the Company and its
shareholders and that, in particular, the equity/option position of executives
are an important factor in retaining and attracting key executives. Nonetheless,
the Committee intends to continue to review and analyze its policies in light of
the performance and development of the Company and the environment in which it
competes for executives and to retain outside compensation consultants from time
to time to assist the Committee in such review and analysis.
15
19
The Committee believes that management compensation levels during the
Company's 1995 Fiscal Year appropriately reflect the application of the
Committees's compensation policy.
Executive Compensation and
Stock Option Committee
Daniel J. Paracka
Kenneth E. Olson
Sidney N. Towle
January 13, 1996
The foregoing reports of the Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference the Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under the Acts.
16
20
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Common Stock from September 30, 1990 to present with the cumulative
total return of the NASDAQ U.S. Index and the NASDAQ Pharmaceutical Index over
the same period.
LIDAK PHARMACEUTICALS
COMPARISON OF FIVE YEAR CUMULATIVE SHAREHOLDER TOTAL RETURN*
AMONG LIDAK PHARMACEUTICALS, THE NASDAQ STOCK MARKET-US INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
TOTAL RETURN DATA SUMMARY
CUMULATIVE TOTAL RETURN**
LIDAK NASDAQ
MEASUREMENT PERIOD PHARMACEUTI- NASDAQ STOCK PHARMACEUTI-
(FISCAL YEAR COVERED) CALS MARKET - US CAL
09/90 100 100 100
09/91 110 157 261
09/92 88 176 222
09/93 690 231 222
09/94 205 233 193
09/95 390 321 286
* The graph assumes that $100.00 was invested in the Company's Common Stock and
in each index on September 30, 1990.
** The total return for the Company's Common Stock and the indices used assumes
the reinvestment of dividends, even though dividends have not been declared
on the Company's Common Stock.
Pursuant to Securities and Exchange Commission regulations, this chart is
not "soliciting material", is not deemed filed with the Securities and Exchange
Commission, and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934.
OTHER BUSINESS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters are properly brought before the meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent in accordance with their judgment.
17
21
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented by such shareholders at
next year's Annual Meeting must be received by the Company at its principal
office no later than September 28, 1996, and must satisfy the conditions
established by the Securities and Exchange Commission for shareholder proposals
to be included in the Company's proxy statement for that meeting.
FORM 10-K
A copy of the Company's annual report for the year 1995 is being mailed
with this proxy statement to shareholders entitled to notice of the meeting. AT
ANY SHAREHOLDER'S WRITTEN REQUEST, THE COMPANY WILL PROVIDE WITHOUT CHARGE, A
COPY OF THE ANNUAL REPORT FOR THE YEAR 1995 WHICH INCORPORATES THE FORM 10-K AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND A LIST OF EXHIBITS. If copies of exhibits are requested, a
copying charge of $.20 per page will be made. Requests should be sent to
investor relations, LIDAK Pharmaceuticals, 11077 North Torrey Pines Road, La
Jolla, California 92037.
By Order of the Board of Directors
MICHAEL H. LORBER
Secretary
--------------------------------------
La Jolla, California
18
22
PROXY
LIDAK PHARMACEUTICALS
FOR ANNUAL MEETING OF SHAREHOLDERS
MARCH 16, 1996
PROXY SOLICITED ON BEHALF OF THE DIRECTORS
The undersigned hereby appoints David H. Katz and Kenneth E. Olson, or either of
them, as his or her agents and proxies with full power of substitution to vote
any and all shares of LIDAK Pharmaceuticals which the undersigned is entitled to
vote at the annual meeting of shareholders of said company to be held March 16,
1996, or any adjournment or postponement thereof, as specified below.
(PLEASE SIGN AND DATE THE PROXY ON THE REVERSE SIDE)
----------------
SEE REVERSE SIDE
----------------
23
/X/ PLEASE MARK YOUR VOTES AS THIS EXAMPLE
1. Election of the following nominees as directors:
FOR (except as indicated to the contrary below) / /
WITHHOLD AUTHORITY TO VOTE FOR / /
NOMINEES: Helmer P. K. Agersborg, Jr.,
William N. Jenkins, and
Stuart A. Samuels.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S
NAME ON THE LINE PROVIDED BELOW.
- --------------------------------------------------------------------------------
2. Proposal to amend the Company's 1994 Stock Option Plan to increase the
number of shares of Class A Common Stock covered by such Plan from
1,100,000 to 1,350,000 shares.
FOR AGAINST ABSTAIN
/ / / / / /
3. Proposal to certify the selection of Deloitte & Touche LLP as
independent auditors for the fiscal year ending September 30, 1996.
FOR AGAINST ABSTAIN
/ / / / / /
4. As they shall in their sole judgment determine on any other matter that
may properly come before the meeting or any adjournment or postponement
thereof.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF SOME OR
ALL OF THE PERSONS NAMED IN PROPOSAL 1 ON THE REVERSE HEREOF, ALL OF WHOM WILL
BE NOMINATED BY THE BOARD OF DIRECTORS OF LIDAK PHARMACEUTICALS FOR ELECTION AS
DIRECTORS, AND FOR PROPOSALS 2, 3, and 4. If any such nominee is unable or
unwilling to serve or is otherwise unavailable, said proxy holders shall have
discretion and authority to vote in accordance with their judgment for other
nominees or to distribute such vote in such proportions among other nominees as
they in their sole judgment shall determine.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE: DATE: , 1996
------------------------------------------- -------------
NOTE: Sign exactly as name appears hereon. Give your full title if signing in
other than individual capacity. All joint owners should sign.