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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 sec.240.14a-11(c) or sec.240.14a-12
LIDAK PHARMACEUTICALS
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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LIDAK PHARMACEUTICALS
11077 NORTH TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 8, 1998
------------------------
The Annual Meeting of Shareholders of LIDAK Pharmaceuticals will be held at
the San Diego Hilton Beach & Tennis Resort at 1775 East Mission Bay Drive, San
Diego, California 92109 on June 8, 1998, at 1:30 p.m. for the following
purposes:
1. To amend Article III of the Company's Bylaws (the "Bylaws") to expand
the authorized number of directors to a minimum of five and a maximum of
nine.
2. To amend Article III of the Bylaws to create three classes of directors
(Class I, Class II and Class III) serving an initial term until the 1999
Annual Meeting of Shareholders, the 2000 Annual Meeting of Shareholders
and the 2001 Annual Meeting of Shareholders, respectively, with the
initial terms for all classes to be followed by full three-year terms
for each class thereafter.
3. To elect directors to Classes I, II and III nominated by the Company's
Board of Directors.
4. To ratify the selection of Deloitte & Touche LLP as independent auditors
for the fiscal year ending September 30, 1998.
5. 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 April 28, 1998 will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
Each of these shareholders is cordially invited to be present and vote at the
meeting in person.
By Order of the Board of Directors,
/s/ JEFFERY B. WEINRESS
JEFFERY B. WEINRESS
Secretary
San Diego, California
May 5, 1998
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.
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LIDAK PHARMACEUTICALS
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 8, 1998
TABLE OF CONTENTS
PAGE
----
General Information......................................... 1
Shares Outstanding and Voting Rights........................ 2
Background Information...................................... 2
Notice of Shareholder Proposals............................. 4
Proposal One
Amendment of Bylaws -- Number of Directors................ 6
Proposal Two
Amendment of Bylaws -- Classes of Directors............... 6
Proposal Three
Election of Directors..................................... 10
Proposal Four
Ratification of Independent Auditors...................... 15
Security Ownership of Certain Beneficial Owners and
Management................................................ 16
Executive Compensation...................................... 20
Other Business.............................................. 27
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LIDAK PHARMACEUTICALS
11077 NORTH TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 8, 1998
------------------------
GENERAL INFORMATION
Your proxy in the enclosed form is solicited by the Board of Directors (the
"Board") of LIDAK Pharmaceuticals, a California corporation (the "Company"), for
use at the annual meeting of the Company's shareholders (the "Shareholders") to
be held at the San Diego Hilton Beach & Tennis Resort at 1775 East Mission Bay
Drive, San Diego, California 92109 on June 8, 1998 at 1:30 p.m. (the "Annual
Meeting" or the "1998 Annual Meeting") for the purposes set forth in the
accompanying notice and at any adjournment or postponement of the Annual
Meeting. The mailing of this Proxy Statement and the accompanying form of proxy
to the Shareholders is expected to commence on or about May 6, 1998.
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
Annual 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 adoption of an amendment to Article III of the Company's Amended and
Restated Bylaws (the "Bylaws") expanding the authorized number of directors to a
minimum of five and a maximum of nine; FOR the adoption of an amendment to
Article III of the Bylaws creating three classes of directors (Class I, Class II
and Class III), serving until the 1999 annual meeting of Shareholders (the "1999
Annual Meeting"), the 2000 annual meeting of Shareholders (the "2000 Annual
Meeting") and the 2001 annual meeting of Shareholders (the "2001 Annual
Meeting"), respectively, with the initial terms for all classes to be followed
by full three-year terms for each such class thereafter; FOR the election of
directors to Class I, II and III nominated by management; and FOR ratification
of the selection of independent auditors for the fiscal year ending September
30, 1998, and as recommended by the Board of Directors in its discretion, with
regard to all other matters which may properly come before the Annual Meeting.
In order for any Shareholder to nominate a candidate or to submit a proposal for
other business to be acted upon at the 1998 Annual Meeting, he or she must
provide the Secretary of the Company with not less than ten (10) days' advance
written notice thereof in the form prescribed by the Company's Bylaws. See
"Notice of Shareholder Proposals." 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 Annual 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 or other third parties to deliver
solicitation material to record holders for distribution by them to their
principals and to assist the Company in collecting or soliciting proxies from
such holders. The costs of these services, exclusive of out-
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of-pocket costs, is not expected to exceed $10,000. 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 April
28, 1998 are entitled to notice of and to vote at the Annual Meeting. On the
record date, there were issued and outstanding 39,812,017 Class A Shares and
49,000 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 at the Annual Meeting. The presence, in person or by
proxy duly authorized, of the holders of a majority of the 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 a
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 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 proposals to amend the Bylaws submitted to the Shareholders in the enclosed
proxy must be approved by the vote of a majority of the outstanding Shares. Any
shares not voted (whether by abstention, broker non-votes or otherwise) will
have the effect of a vote against the proposal. The proposal to ratify the
selection of the independent auditors must be approved by the holders of a
majority of the Shares 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.
BACKGROUND INFORMATION
RECENT EVENTS AFFECTING THE 1998 ANNUAL MEETING OF SHAREHOLDERS
The 1998 Annual Meeting of Shareholders, which previously was scheduled to
be held on April 18, 1998, was postponed until June 8, 1998 by the Company's
Board of Directors in connection with a settlement between the Company and a
group of shareholders who had commenced a proxy contest for the election of an
alternate slate of directors at the Company's 1998 Annual Meeting. A summary of
the events leading to the settlement, as well as the terms of the settlement
agreement between the Company and those parties, are described below.
Description of Events Leading to the Settlement
In January 1998, the Company received a preliminary proposal from
HealthMed, Inc. ("HealthMed") relating to the possibility of a substantial loan
to the Company by HealthMed and other lenders affiliated with HealthMed. The
Company engaged discussions with HealthMed regarding its proposal until March 2,
1998, when discussions ended. On March 16, 1998, a group consisting of
HealthMed, Mitchell J. Stein, George P. Rutland, Wallace O. Raubenheimer and
David H. Katz, M.D., filed with the Securities and Exchange Commission (the
"Commission") an Amendment No. 1 to the Schedule 13D of HealthMed, which stated
that they had formed a group which might seek to obtain voting control over a
majority of the Company's outstanding securities through open market purchases,
privately negotiated transactions, placement of shares into voting trusts over
which HealthMed would have voting control, the solicitation of proxies or
otherwise.
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On March 17, 1998, a group known as the LIDAK Pharmaceuticals Shareholders
Committee (the "Shareholders Committee"), consisting of HealthMed and Wallace O.
Raubenheimer, filed a preliminary proxy statement with the Commission. In its
preliminary proxy statement, the Shareholders Committee indicated that it
intended to solicit proxies from the Company's shareholders to be voted in favor
of an alternate slate of nominees at the 1998 Annual Meeting, consisting of
Edward L. Hennessy, Jr., George P. Rutland and Wallace O. Raubenheimer, for
election as directors to hold office until the Company's 2000 Annual Meeting. If
elected, the three nominees of the Shareholders Committee, together with Dr.
Katz, the former CEO and a Director of the Company until the 1999 Annual
Meeting, would have constituted a majority of the Company's seven-member Board
of Directors.
Between March 18, 1998 and March 24, 1998, the Company engaged in
settlement discussions with representatives of the Shareholders Committee and
its nominees. On March 24, 1998, in order to avoid the probable disruption to
the Company's business and the substantial expenses associated with a proxy
contest, the Company's Board of Directors approved the terms of a proposed
settlement with the Shareholders Committee and its nominees. On March 25, 1998,
the Company and the Shareholders Committee jointly announced that they had
entered into an Agreement of Settlement and Compromise dated as of March 24,
1998 (the "Settlement Agreement"), pursuant to which the Shareholders Committee
and its nominees agreed to withdraw the preliminary proxy statement and also
agreed to certain other covenants and limitations.
Dr. Katz did not vote in favor of the proposed settlement and was not a
party to the Settlement Agreement. On March 30, 1998, Dr. Katz filed with the
Commission Amendment No. 1 to his Schedule 13D, in which he objected to the
Settlement Agreement and disclaimed any further membership in the HealthMed
group of shareholders. On April 11, 1998, Dr. Katz filed suit against Mitchell
J. Stein, HealthMed and others, seeking rescission of his transfer of shares to
HealthMed (including his transfer into the voting trust he entered into with
HealthMed (the "Katz Voting Trust")), monetary damages and other relief. (See
Footnote 4 to "Security Ownership of Certain Beneficial Owners and Management,"
below, for more information regarding the Katz Voting Trust.)
Summary of Principal Terms of the Settlement Agreement
The Settlement Agreement provides for an expanded LIDAK Board of Directors
to be comprised of nine members, including four existing LIDAK directors, three
additional independent nominees (at least one of whom would have significant
pharmaceutical industry experience) (the "Independent Nominees") to be mutually
agreed upon by a joint search committee of the parties, and two nominees of the
Shareholders Committee, Messrs. Rutland and Hennessy. In connection with the
increase in the size of the Board of Directors, the Board adopted, subject to
shareholder approval, a Bylaw amendment expanding the number of authorized
directors to a range with a minimum of five and a maximum of nine directors
(with the exact number of directors to be fixed from time to time within these
limits by the Board of Directors). The Board also adopted, subject to
shareholder approval, an additional Bylaw amendment increasing the number of
classes of directors from two classes to three classes, with Class I serving an
initial term until the 1999 Annual Meeting, Class II serving an initial term
until the 2000 Annual Meeting, and a new Class III serving an initial term until
the 2001 Annual Meeting. The initial terms for all Classes would be followed by
full three-year staggered terms for each such Class. Under the Settlement
Agreement, the Company agreed that the three Classes of the reconstituted Board
of Directors would include the following persons: Class I -- Dr. Katz, one
Independent Nominee and one incumbent director; Class II -- Mr. Hennessy, one
Independent Nominee and one incumbent director; and Class III -- Mr. Rutland,
one Independent Nominee and one incumbent director. The directors in Class I are
not up for election at the 1998 Annual Meeting, except for the vacant director's
seat which is to be filled by one of the Independent Nominees. The proposals to
approve the Bylaw amendments and to elect the nominees to fill the one vacant
director's seat in Class I, the three directors' seats up for election in Class
II and the three directors' seats up for election in the newly created Class
III, are presented for shareholder approval in this Proxy Statement. The Company
and the Shareholders Committee
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and its nominees have agreed to vote all shares owned by them or as to which
they have the right to direct the vote in favor of these proposals and nominees
at the 1998 Annual Meeting.
The Settlement Agreement further provides that until the completion of the
1998 Annual Meeting, the Company will not, subject to the Board's fiduciary
duties, engage in any extraordinary business combinations, nor enter into any
employee retention agreements except in the ordinary course of business or with
certain specified senior managers of the Company. The Company has agreed to
permit Mr. Rutland to attend meetings of the Company's Board of Directors as an
observer until the completion of the 1998 Annual Meeting, subject to his
executing a customary confidentiality agreement.
Under the Settlement Agreement, the parties have agreed to certain other
covenants and limitations. Until the Company's 2001 Annual Meeting, HealthMed
and Mr. Stein will not acquire, or offer or agree to acquire, directly or
indirectly, by purchase or otherwise, beneficial ownership of any LIDAK
securities (or rights, options or warrants to acquire LIDAK securities), other
than those LIDAK securities beneficially owned by them as of the date of the
Settlement Agreement, or encourage any person to acquire, or advise any person
with respect to the acquisition, or proposed acquisition of LIDAK securities
other than attempts to dispose of their LIDAK securities, subject to certain
exceptions, including HealthMed's permitted acquisition of LIDAK securities in
amounts necessary to maintain its existing percentage ownership in LIDAK Class A
Common Stock and its permitted acquisition of certain LIDAK securities upon the
exercise of stock options by Dr. Katz, pursuant to a Purchase Rights Agreement
dated January 12, 1998 between HealthMed and Dr. Katz. In addition, until the
Company's 2001 Annual Meeting, the members of the Shareholders Committee and
their nominees will not: (i) solicit, or encourage or assist any other person to
solicit, or become a participant or otherwise engage in any solicitation of, any
proxy, consent or other shareholder solicitations with respect to LIDAK
securities, advise or seek to advise any person with respect to voting LIDAK
securities, submit or encourage or advise or assist any other person with
respect to the submission of any nominations or proposals for consideration by
the Company's shareholders, or take any action to request a special meeting of
any holders of LIDAK securities; (ii) sell or otherwise convey (singly or
collectively) more than five percent of LIDAK's then-current outstanding
securities to any person or group, unless such person or group, and every member
thereof, agrees in writing to be bound by the terms of the Settlement Agreement;
(iii) deposit any LIDAK securities into a voting trust or subject such
securities to a voting agreement or similar arrangement, or otherwise form or
join a partnership, limited partnership, syndicate or group for the purpose of
acquiring, holding, voting or disposing of any LIDAK securities, except for the
LIDAK securities held in voting trust by the parties as of the date of the
Settlement Agreement; (iv) engage in or offer, agree or propose to engage in any
business combination involving the Company (other than to participate as a
shareholder on terms generally available to all shareholders), or arrange or in
any way participate in the financing of any business combination or purchase by
any person of LIDAK securities or assets, except for a financing or investment
proposal presented privately to the Company's Board of Directors or a tender of
shares in response to a third party tender offer for all outstanding shares of a
class of LIDAK securities; (v) otherwise act alone or in concert with others to
seek representation on the Company's Board of Directors or to acquire control of
the Company or any of its securities or assets; (vi) publicly request any
amendment of the "standstill" provisions of the Settlement Agreement; or (vii)
assist or advise, or enter into any agreement or arrangement to assist or
advise, any person in taking any of the foregoing actions. If the Company's
Board of Directors invites offers from third parties for a business combination
that would result in a change of control of the Company, the Settlement
Agreement would not prohibit the members of the Shareholders Committee and their
nominees from competing on equal terms with any such third party.
The Settlement Agreement does not contemplate any changes to the Company's
current executive management. Under the Settlement Agreement, the members of the
Shareholders Committee and their nominees have agreed, subject to the fiduciary
duties of any such party who may be a member of the Company's Board of
Directors, (i) not to propose, encourage others to propose, or assist or support
in any way, directly or indirectly, the employment or appointment of Dr. Katz in
any capacity as an officer, employee or consultant of the Company, and (ii)
except for the completion of his current term as a director, not to nominate,
encourage others to nominate, vote for the nomination of or assist or support in
any way the
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nomination or election of, directly or indirectly, Dr. Katz as a director of the
Company, through the completion of the Company's 2001 Annual Meeting or
election.
The Settlement Agreement provides that the Company will reimburse HealthMed
for 75% of the third party expenses related to its proxy contest, with such
payment not to exceed $150,000. These moneys have been placed in escrow pending
the completion of the 1998 Annual Meeting, and will be disbursed to HealthMed if
the proposals to amend the Bylaws and elect the specified nominees are approved
by the Company's Shareholders at the 1998 Annual Meeting. In the event the
proposals are not approved, the moneys will be returned to the Company, and the
parties will be relieved of all of their obligations under the Settlement
Agreement, except for the mutual releases by the parties contained therein. The
Settlement Agreement does not restrict HealthMed from making financing or
investment proposals presented privately to the Board of Directors of the
Company.
The Settlement Agreement also provides that none of the parties will make
publicly any negative statements regarding the other parties, the Company's
Board of Directors, the process by which the Company's Board may seek to enhance
shareholder value, or any proposed, pending or consummated business combination
involving the Company. Each of the parties also has agreed that, subject to his
or its right to pursue legitimate business objectives independently and in good
faith, he or it will not, directly or indirectly, take any action or encourage
any person to take any action, the intent or direct foreseeable result of which
is to interfere with or adversely affect the business activities, contractual
relationships or business opportunities of the other parties to the Settlement
Agreement or their affiliates and associates.
NOTICE OF SHAREHOLDER PROPOSALS
On March 14, 1998, the Board unanimously approved the Fourth Amendment (the
"Amendment") to the Bylaws. The Amendment provides that any shareholder seeking
to nominate a candidate for election as a director at an annual meeting of the
Company or to submit other proper business to be conducted at any such meeting
must deliver written notice of the nomination or other proper submission of
business to the Secretary of the Company not less than 10 days in advance of the
annual meeting, as described below. The Company believes this Bylaw provision
applies to any and all Shareholders seeking to nominate a candidate or submit
other proper business before an annual meeting. To be timely for the Annual
Meeting, any such notice must be received by the Secretary of the Company by May
29, 1998. If a nomination or submission is not delivered in accordance with the
proper procedures, the defective submission will be disregarded by the officer
of the Company presiding at the Annual Meeting. Under the terms of the Bylaw
provision, the Company is under no obligation to notify a Shareholder prior to
the annual meeting of any defects in a notice submitted to the Company.
The Amendment was adopted by the Board to allow Shareholders enough time to
nominate candidates or to submit proper business to be conducted at an annual
meeting, while at the same time providing the Board sufficient opportunity to
evaluate the merits of any proposal and assure an orderly and productive annual
meeting of Shareholders. Given the possibility that one or more Shareholders
could make additional business proposals or nominations of director candidates
from the floor at the Annual Meeting, the Board adopted the Amendment to
facilitate the advance preparation of an agenda for business at the Annual
Meeting and the efficient presentation of proper business for action by the
Shareholders.
The text of the Amendment is as follows:
"(a) The annual meeting of shareholders shall be held each year on a
date and at a time fixed by the Board of Directors. At each annual meeting,
(i) directors shall be elected from the persons who are nominated in
accordance with the procedures set forth in paragraph (b) below and (ii)
any proper business shall be conducted which has been submitted in
accordance with the procedures set forth in paragraph (b) below.
(b) Only proper business which has been submitted in accordance with
the following procedures shall be conducted at the annual meeting.
Submissions of nominations of persons for election as directors or other
proper business to be conducted at the annual meeting may be made at such
meeting by or at the
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direction of the Board of Directors, by any committee or persons appointed
by the Board of Directors or by any shareholder of the corporation who
complies with the notice procedures set forth in this paragraph. Such
submissions of proper business by any shareholder shall be made pursuant to
timely notice in writing to the Secretary of the corporation. To be timely,
a shareholder's notice shall be delivered to, or mailed and received at,
the principal executive offices of the corporation not less than 10 days
prior to the annual meeting. Such shareholder's notice to the Secretary
shall set forth (i) a description of the proper business submitted for
consideration at the annual meeting, (ii) the name and record address of
the stockholder giving the notice, (iii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the
stockholder, and (iv) if such business involves the nomination of a person
for election as a director, the name, age, business and residence addresses
and principal occupation of such person. No proper business shall be
conducted at the annual meeting unless submitted in accordance with the
procedures set forth herein. The officer of the corporation presiding at an
annual meeting shall, if the facts warrant, determine and declare to the
meeting that a submission of a proper nomination or proper business was not
made in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective submission
shall be disregarded."
PROPOSAL ONE
Approval of Proposal One is being solicited conditioned on the approval of
Proposal Two. In the event that Proposal Two is not approved by the
Shareholders, the amendment that is the subject of Proposal One will not be
adopted by the Company, notwithstanding the outcome of the Shareholders' vote on
Proposal One.
AMENDMENT OF THE COMPANY'S BYLAWS TO INCREASE
AUTHORIZED NUMBER OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
Article III, Section 3.2 of the Bylaws currently provides that the Board
shall consist of a minimum of four and a maximum of seven directors. Pursuant to
the Settlement Agreement, the Board has adopted, subject to Shareholder approval
and conditioned upon Shareholder approval of Proposal Two, below, an amendment
to the Bylaws fixing the size of the Board at a minimum of five directors and a
maximum of nine directors. The purpose of this increase is to enable expansion
of the Company's classified Board to three classes of three directors each to
facilitate election of directors pursuant to the Settlement Agreement. The
amendment to the Bylaws to increase the maximum authorized number of directors
will be in substantially the form of proposed Article III, Section 3.2 of the
Bylaws set forth in Exhibit A to this Proxy Statement. See "Background
Information," above, for details regarding the Settlement Agreement. See also
"Proposal Two," below, for information regarding expansion of the classified
Board and "Proposal Three" for information regarding the election of directors.
Since Proposal One is conditioned on Shareholder approval of Proposal Two,
Proposal One will not be effective, even if approved by the Shareholders, unless
Proposal Two is also approved by the Shareholders. Similarly, approval of
Proposal One is a condition of approval of Proposal Two, since Proposal Two
requires nine directors.
The affirmative vote of a majority of the Shares is required to approve
this proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
PROPOSAL TWO
Approval of Proposal Two is being solicited conditioned on the approval of
Proposal One. In the event that Proposal One is not approved by the
Shareholders, the amendment that is the subject of Proposal Two will not be
adopted by the Company, notwithstanding the outcome of the Shareholders' vote on
Proposal Two.
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AMENDMENT OF BYLAWS TO EXPAND CLASSES OF DIRECTORS
(ITEM 2 ON THE PROXY CARD)
Pursuant to the Settlement Agreement and subject to Shareholder approval of
Proposal One, the Board has approved an amendment to the Bylaws changing the
nature of the Company's current "classified Board" with staggered terms, and is
submitting this amendment for Shareholder approval at the Annual Meeting. Under
the current classified Board, the directors of the Company are divided into two
classes, designated Class I and Class II. Class I currently consists of three
directors (Messrs. Agersborg, Jenkins and Samuels). Class II currently consists
of four directors (Messrs. Katz, Olson, Yakatan and Towle). If the number of
directors on the Board is increased (or decreased), the number of directors in
each current class would be modified to remain as nearly equal as reasonably
possible, with any overage allocated in the discretion of the Board. The term of
the Class I directors currently expires at the 1998 Annual Meeting; the term of
the Class II directors currently expires at the 1999 Annual Meeting. Vacancies
which occur during the term may be filled by the Board. If the Proposal Two is
adopted, the directors of the Company will be divided into three classes, each
of which will consist of three directors. The Class I directors will serve an
initial term until the 1999 Annual Meeting, the Class II directors will serve an
initial term until the 2000 Annual Meeting, and the Class III directors will
serve an initial term until the 2001 Annual Meeting. The initial terms for all
Classes would be followed by full three-year staggered terms for each such
Class. As indicated in Proposal Three and subject to the approval of
Shareholders, Class I will initially consist of Dr. Yakatan, Dr. Katz and Mr.
George; Class II will initially consist of Messrs. Hennessy and Samuels and Dr.
Carlo; and Class III will initially consist of Messrs. Rutland, Olson and Smith.
As with the current classified Board, if the number of directors on the Board is
increased (or decreased) in the future, the number of directors in each current
class would be modified to remain as nearly equal as reasonably possible, with
any overage allocated in the discretion of the Board. As with the current
classified Board, vacancies which occur during the term may be filled by the
Board. (See information regarding nominees under "Proposal Three," below.)
The amendment to the Bylaws to establish a classified Board will be in
substantially the form of proposed Article III, Section 3.3 of the Bylaws set
forth in Exhibit B to this Proxy Statement.
GENERAL EFFECT OF AMENDMENT
The creation of three as opposed to two classes of directors may
significantly extend the time required to elect a majority of the Board. At
present, a change of control of the Board can be made by Shareholders holding a
majority of the Shares at a single annual or special meeting of Shareholders
every other year (currently in the year that four Class II directors are to be
elected). If the proposed amendment is adopted, Shareholders acquiring a
majority of the Shares will not be able to elect a majority of the Board during
any one year. As is currently the case under the Bylaws, directors appointed by
the Board to fill any vacancy on the Board may be appointed to serve a full term
in office. If the proposed amendment to the Bylaws is adopted a full term in
office may be as long as three years.
Under California law, no director on a classified board of directors can be
removed from office without cause if the votes cast against removal would be
sufficient to elect the director if voted cumulatively at an election at which
the same total number of votes were cast and either the number of directors
elected at the most recent annual meeting of shareholders, or if greater, the
number of directors for whom removal is being sought, were then being elected.
Because a minority of the shareholders can prevent the majority from removing
the entire board of directors without cause, expanding the classification of the
board of directors will generally make it more difficult for a shareholder or
group of shareholders to abruptly take control of the board of directors.
PURPOSE
The expansion into three classes of directors is being proposed pursuant to
the Settlement Agreement. In addition, the Board believes that the expansion
into three classes of directors would be advantageous to the Company and the
Shareholders because it enhances the ability of the Board to negotiate with
potential acquirors of the Company. Faced with an expanded classified Board,
such a person or group would have to
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assess carefully its ability to control or influence the Company without
approval from the Board. The ability of the incumbent Board to respond
effectively to a proposed hostile acquisition will be strengthened by the
presence of a classified Board. Without an imminent threat of ouster, the Board
will be acting in a less pressured environment with more time to make and
implement appropriate business judgments in response to the acquisition
proposal.
A classified Board may also give the Board a greater likelihood of
continuity and experience, since at any one time at least six directors would
have at least one year remaining in their respective terms. The Board is not
aware of any Company problems due to lack of continuity and stability of
leadership and policy, but believes a classified Board is in the best interests
of the Shareholders because it will create an environment that promotes
continuity and decreases the likelihood of such problems arising in the future.
It should be noted however that an expanded classified Board, in
combination with the limitation on the Shareholders' ability to remove directors
as described above, will tend to make it more difficult for the Shareholders to
change the composition of the Board, through a proxy contest or otherwise,
whether or not for takeover purposes, thereby tending to assist the directors
then in office in maintaining their incumbency. The expansion of the classified
Board may also under certain circumstances discourage or render more difficult a
merger, tender offer or proxy contest, discourage the acquisition of large
blocks of the Shares by persons who would not make such an acquisition without
assurance that they could quickly gain control of the Board and deter or delay
the assumption of such control by a holder of a large block of the Shares.
For a description of existing anti-takeover measures that the Company has
in place or is investigating, and a discussion of the advantages and
disadvantages of takeover defenses, see "General Discussion of Takeover Defenses
and Summary of Existing Measures", below.
VOTE REQUIRED
The affirmative vote of a majority of the Shares is required to approve
this proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
GENERAL DISCUSSION OF TAKEOVER DEFENSES AND
SUMMARY OF EXISTING MEASURES
One effect of Proposal Two may be to deter non-negotiated takeover
attempts. (See "Proposal Two -- General Effect of Amendment -- Purpose.")
The Company's Articles of Incorporation currently authorize 9,700,000
shares of Preferred Stock all of which are available for issuance as new series.
These shares could be used as a device to deter persons considering tender
offers, proxy contests or other takeover attempts from pursuing such actions
without the cooperation of the Board. In addition, the Bylaws eliminate
cumulative voting which may also have a similar effect.
Each of these is described in greater detail below.
Reasons for Adopting Takeover Defenses
Takeover attempts have become common in recent years. Takeover attempts
which have not been negotiated with and approved by a company's board of
directors (so-called "hostile takeovers") can seriously disrupt business,
distract management and cause great expense. Such attempts present to
shareholders the risk of a takeover on terms which may be less favorable than
would be available in a transaction negotiated and approved by the board of
directors. Such attempts may be timed to take advantage of temporarily depressed
stock prices, may be designed to foreclose or minimize the possibility of
competing bids, and may be made at prices which fail to reflect the long-term
value of the company. Moreover, hostile takeover attempts are often structured
in ways which may not be in the best interests of all shareholders. A takeover
attempt may involve an offer to acquire less than all shares in exchange for
securities of lesser value. The Board believes that these
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"two-tiered" or "front-end loaded" offers tend to pressure shareholders into
making ill-considered decisions and can be unfair to those shareholders whose
shares are not purchased in the first stage of the acquisition.
On the other hand, board-approved transactions can be carefully planned and
undertaken at a favorable time to obtain maximum value, with due consideration
given to such essential matters as the underlying and long-term value of the
company's assets, possible alternative transactions on better terms, anticipated
developments in the company's business not yet reflected in stock prices, and
equal treatment for all shareholders.
The Board recognizes that takeover attempts which have not been negotiated
with and approved by the Board do not always have the unfavorable consequences
or effects described above. Hostile tender offers and other takeover attempts
may be made at times and under circumstances which are beneficial to and in the
interests of the shareholders. Tender offers or other takeover attempts are not
all structured as two-tiered offers and do not all have features of the type
described above which may be to the disadvantage of shareholders. Further, it is
not necessarily the case that a hostile offer will be less advantageous than a
Board-approved transaction. However, taking all factors into consideration, the
Board believes that the potential disadvantages of hostile takeover attempts are
sufficiently great that the prudent steps to reduce the likelihood of such
takeover attempts are in the best interests of the Company and all of its
Shareholders. The Board also believes that generally the Board is in the best
position to act effectively as a representative of the Shareholders.
Accordingly, the Board believes that it is in the best interests of the Company
and the Shareholders to encourage potential acquirors to negotiate directly with
the Board. The Board also believes that the measures which the Company currently
has in place, and those for which Shareholder approval is now sought, will
encourage such negotiations and discourage hostile takeover attempts. It is also
the view of the Board that the existence of these provisions should not preclude
anyone from proposing a merger, tender offer or other transaction at a price
reflective of the value of the Company and which is in the best interests of the
Shareholders.
The Company is not aware of any proposed takeover or other attempt to
acquire control of the Company. No tender offer, leveraged buyout or similar
transaction involving a change of control of the Company is now pending. The
Board has no current intention to propose or adopt other measures designed to
discourage takeovers apart from those proposed in this Proxy Statement, although
additional measures may be proposed or adopted if warranted from time to time in
the judgment of the Board.
Possible Disadvantages of Takeover Defenses
By increasing the probability that any person or group seeking control of
the Company would be forced to negotiate directly with the Board, anti-takeover
measures may have the effect of discouraging future takeover bids by means of a
hostile tender offer, proxy contest or otherwise. The principal disadvantages to
the Shareholders that could result from discouraging such hostile takeover bids
would be to (a) reduce the likelihood that a potential acquiror would make a
hostile tender offer for the Company's Common Stock at a premium over the market
price where such premium could be attractive to the Shareholders, and (b) make
the accomplishment of a given transaction more difficult or expensive, even when
the transaction may be favorable to the interests of the Shareholders.
In addition, the existence of such measures may have the overall effect of
making it more difficult for holders of a majority of the Company's outstanding
Common Stock to change the composition of the Board and remove management in
circumstances where a majority of the Shareholders may be dissatisfied with the
performances of the Board or management or otherwise desire to make a change.
Summary of Existing Measures
The following measures having the purpose or the effect of deterring
non-negotiated takeover attempts have been implemented by the Company.
1. Authorization of Preferred Stock. At the 1994 annual meeting of the
Shareholders (the "1994 Annual Meeting"), the Shareholders approved amendments
to the Company's Articles of Incorporation which (i) increased the number of
authorized shares of the Company's Common Stock to 100,000,000 shares consisting
of 99,490,000 shares of Class A Common Stock and 510,000 shares of Class B
Common Stock and
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13
(ii) increased the number of shares available for issuance as new series of
Preferred Stock to 9,700,000. As of the date of this Proxy Statement, 9,700,000
shares of Preferred Stock are authorized but unissued.
Under certain circumstances, the shares of Preferred Stock which are
authorized but unissued could be used to create voting impediments or to
frustrate persons seeking to effect a takeover, engage in proxy contests, or
otherwise gain control of the Company. The Board could authorize holders of the
Preferred Stock to vote as a class, either separately or with the holders of the
Company's Common Stock, and with voting rights per share that are the same or
different than the voting rights of a share of Common Stock, on the election of
directors, a merger, sale or exchange of assets by the Company or any other
extraordinary corporate transaction. In addition, the shares of the additional
Preferred Stock could be privately placed with purchasers who might side with
the Board in opposing a hostile takeover bid. Such uses could enhance the
Board's ability to deal with attempts to gain control of, or impose transactions
upon, the Company which the Board believes are coercive, unfair or otherwise not
in the best interests of the Company and all of the Shareholders.
This might have the possible effect of discouraging an attempt by another
person to acquire control of the Company, since the issuance of shares of the
Preferred Stock could be used to dilute the stock ownership of a person seeking
to obtain control. In addition, the additional Preferred Stock could be used by
the Board in connection with a shareholders rights plan to provide special
conversion, voting or other rights or features designed to deter a hostile
takeover.
2. Absence of Cumulative Voting. At the 1994 Annual Meeting, the
Shareholders approved an amendment to the Bylaws to eliminate the right to
invoke cumulative voting in future elections of directors. Cumulative voting
entitles each shareholder to cast a number of votes that is equal to the number
of voting shares held by such shareholder multiplied by the total number of
directors to be elected, and to cast all such votes for one nominee or
distribute the votes among up to as many candidates as there are positions to be
filled. Without cumulative voting, a shareholder or group of shareholders must
hold a majority of the shares present and voting at a duly convened meeting of
shareholders to cause the election of any or all nominees. Cumulative voting
enables a minority shareholder or group of shareholders holding a relatively
small number of shares to elect at least one representative to the board of
directors. For example, in the election of six directors, under cumulative
voting rules, a shareholder or group holding greater than one-seventh
(approximately 14%) of the voting shares is guaranteed the ability to elect one
director. The elimination of cumulative voting thus makes it more difficult for
a minority shareholder or group of shareholders to elect a representative to the
Board. In addition, the elimination of cumulative voting may under certain
circumstances discourage or render more difficult a merger, tender offer or
proxy contest; discourage the acquisition of large blocks of the Company's
Common Stock by persons who would not make such an acquisition without
assurances of the ability to place a representative on the Board; deter or delay
the assumption of control by a holder of a large block of the Company's Common
Stock; or render more difficult the removal or replacement of incumbent
directors and management.
PROPOSAL THREE
ELECTION OF DIRECTORS
(ITEM 3 ON THE PROXY CARD)
As indicated above under "Proposal One," the By-laws of the Company
currently provide that the Board shall be divided into two classes as nearly
equal in number as reasonably possible with any overage allocated in the
discretion of the Board. The current number of directors (which may vary between
four and seven) has been fixed at seven by action of the Board in accordance
with the Bylaws. Each class of directors has a two-year term. Currently, the
three Class I Directors of the Company are Messrs. Agersborg, Jenkins and
Samuels (whose terms expire at the 1998 Annual Meeting) and the four Class II
Directors are Dr. Katz, Mr. Olson, Mr. Towle and Dr. Yakatan (whose terms expire
at the 1999 Annual Meeting). Dr. Agersborg, Mr. Jenkins and Mr. Towle have
resigned as directors, conditioned upon the Shareholders approving Proposal One
and Proposal Two and upon their successors being duly elected at the 1998 Annual
Meeting.
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In the event that the shareholders approve Proposals One and Two, seven of
the nine directors of the Company are to be elected at the meeting for the
classes indicated below. Dr. Yakatan and Dr. Katz, whose terms currently
terminate at the 1999 Annual Meeting, are not proposed for election at the 1998
Annual Meeting. Rather, each of Dr. Yakatan and Dr. Katz will continue to serve
as a director 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 Bylaws of the Company. In the event that the Shareholders do
not approve Proposal One and Proposal Two, the elections of directors described
below and voting on Proposal Four will not proceed. Instead, the 1998 Annual
Meeting will be adjourned and the Company will prepare and circulate a proxy for
election of Class I directors to the currently existing two class board
structure.
The one Class I Director nominee to be elected at the 1998 Annual Meeting
will hold office until the 1999 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 Bylaws of the
Company. Each Class II Director nominee elected at the Annual Meeting will hold
office until the 2000 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 Bylaws of the Company. Each
Class III Director nominee elected at the Annual Meeting will hold office until
the 2001 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. The
initial term for all of the classes of directors set forth above are to be
followed by full three year terms after the initial period indicated. Management
knows of no reason why any of the nominees listed below 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 RECOMMENDS VOTING "FOR" THE SEVEN NOMINEES LISTED BELOW.
INFORMATION REGARDING CURRENT DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999
ANNUAL MEETING
The following table includes information regarding Dr. Katz and Dr.
Yakatan. Both Dr. Katz and Dr. Yakatan are currently Class II directors whose
terms expire at the 1999 Annual Meeting and are not nominated for election at
the 1998 Annual Meeting. However, in the event that the Shareholders approve
Proposals One and Two, Dr. Katz and Dr. Yakatan will be deemed to be a Class I
directors for purposes of this Proxy Statement.
PRINCIPAL OCCUPATION FOR THE CURRENT
PAST FIVE YEARS AND OTHER DIRECTOR TERM
NAME AGE DIRECTORSHIPS SINCE ENDS
---- --- ----------------------------------- -------- -------
David H. Katz, M.D......... 54 Former Chief Executive Officer of August 1999
the Company from August 1988 1988
through October 1989 and from March
1992 to March 1998. Founder of
Medical Biology Institute ("MBI"),
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.
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PRINCIPAL OCCUPATION FOR THE CURRENT
PAST FIVE YEARS AND OTHER DIRECTOR TERM
NAME AGE DIRECTORSHIPS SINCE ENDS
---- --- ----------------------------------- -------- -------
Gerald J. Yakatan, Ph.D.... 55 President and CEO since March 1998. February 1999
Vice President of Drug Development 1998
of the Company on a half-time basis
from July 1995 to March 1998.
Independent consultant to other
biotechnology companies and
President and CEO of IriSys
Research & Development, LLC, a com-
pany specializing in contract drug
formulation services, founded by
Dr. Yakatan in 1996. President and
CEO of Tanabe Research
Laboratories, USA, Inc., an
inflammation drug discovery
research and development company,
from 1990 to 1995. Executive Vice
President for Research and
Development and Vice President of
Pharmaceutical Development at
Immunetech Pharmaceuticals (prede-
cessor to Tanabe Research) from
1987 to 1990.
INFORMATION REGARDING CLASS I DIRECTOR NOMINEE FOR ONE-YEAR TERM EXPIRING
AT THE 1999 ANNUAL MEETING
The following table sets forth the name, age, principal occupations for the
periods indicated and other directorships of the current Class I director
nominee at the Annual Meeting.
PRINCIPAL OCCUPATION FOR THE CURRENT
PAST FIVE YEARS AND OTHER DIRECTOR TERM
NAME AGE DIRECTORSHIPS SINCE ENDS
---- --- ----------------------------------- -------- -------
Michael W. George.......... 49 Executive Vice President, N/A N/A
Administration and Senior Vice
President, Cardiovasculars, at The
Dupont Merck Pharmaceutical Company
since June 1997. From August 1989
to June 1997, served in positions
at Dupont Merk as President,
International & Europe (January
1994 to December 1996); President,
North America (January 1992 to De-
cember 1993); Vice President, Sales
& Marketing (January 1991 to
December 1991) and Director,
Worldwide Marketing (August 1989 to
December 1990). Prior to August
1989, held positions as a Product
Manager at Bristol-Myers Squibb and
Sandoz Pharmaceuticals.
INFORMATION REGARDING CLASS II DIRECTOR NOMINEES FOR A TWO-YEAR TERM
EXPIRING AT THE 2000 ANNUAL MEETING
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The following table sets forth the names, ages, principal occupations for
the periods indicated and other directorships of the Class II director nominees
at the Annual Meeting. Mr. Samuels is currently a director of the Company.
PRINCIPAL OCCUPATION FOR THE CURRENT
PAST FIVE YEARS AND OTHER DIRECTOR TERM
NAME AGE DIRECTORSHIPS SINCE ENDS
---- --- ----------------------------------- -------- -------
Dennis J. Carlo, Ph.D...... 54 Co-founder and a Director of Immune N/A N/A
Response Corporation since 1987 and
its President and Chief Executive
Officer since 1994. From 1987 to
1994, served as its Chief
Scientific Officer, Chief Operating
Officer and Executive Vice
President. From 1982 to 1987,
served as Vice President of
Research and Development and
Therapeutic Manufacturing at
Hybritech, Inc., a biotechnology
company acquired in 1986 by Eli
Lilly & Co. From 1971 to 1981, held
various positions at Merck & Co.,
Inc. Serves as a Director of Vyrex
Corporation.
Edward L. Hennessy, Jr..... 70 Retired. Formerly Chairman and N/A N/A
Chief Executive Officer of
Allied-Signal, Inc. from 1979 to
1991. Serves as a Director of The
Wackenhat Corporation and NAI
Technologies.
Stuart A. Samuels.......... 56 Pharmaceutical industry consultant April 1998
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.
INFORMATION REGARDING CLASS III DIRECTOR NOMINEES FOR A THREE-YEAR TERM
EXPIRING AT THE 2001 ANNUAL MEETING
The following table sets forth the names, ages, principal occupations for
the periods indicated and other directorships of the Class III director nominees
at the Annual Meeting. Mr. Olson is currently a director of the Company.
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PRINCIPAL OCCUPATION FOR THE CURRENT
PAST FIVE YEARS AND OTHER DIRECTOR TERM
NAME AGE DIRECTORSHIPS SINCE ENDS
---- --- ----------------------------------- -------- -------
Kenneth E. Olson........... 61 Chairman of the Board (July 1984-- August 1999
present) and Chief Executive 1988
Officer (December 1990--February
1996 and March 1997--present) of
Proxima Corporation, a supplier of
display projection systems for
professional desktop computers.
Also serves as a Director of Laser
Power Corp. and Applied Digital
Access Corp.
George P. Rutland.......... 65 Chairman, Chief Executive Officer N/A N/A
and a Director of Taipan
Corporation since 1995, a
management consulting and investing
company. Director of Hemet Federal
Bank. Retired Chairman, President
and Chief Executive Officer of
Northeast Federal Corp. and
Northeast Savings Bank in Hartford,
Connecticut from 1988 until 1994.
Chairman and Chief Executive
Officer and a Director of American
Custody Corp. from 1993 to 1994.
Also served as President and Chief
Executive Officer and a Director of
CalFed, Inc. (from 1982 to 1988)
and Vice Chairman and a Director of
California Federal Bank (from 1982
to 1988); as Senior Executive Vice
President of Crocker National Bank
(from 1975 to 1982); and as Senior
Vice President of Citibank (from
1954 to 1975).
Joseph E. Smith............ 59 Retired. From March 1989 to N/A N/A
September 1997, Mr. Smith served in
various capacities at
Warner-Lambert (including President
of Pharmaceuticals (Parke-Davis)
and President of Shaving Products
(Schick and Wilkinson Sword),
retiring in September 1997 as
Corporate Vice-President at
Warner-Lambert, and a member of the
Office of the Chairman and the
firm's Management Committee). Mr.
Smith currently serves as a
Director of Boren, LePore, Inc.,
Penederm, Inc.; and Vivus, Inc.
There are no family relationships among any of the directors and officers.
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THE BOARD RECOMMENDS A VOTE "FOR" EACH NOMINEE.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended September 30, 1997 ("Fiscal 97"), the Board
held six regular meetings and three special meetings. Each director attended at
least 75% of the meetings held during Fiscal 97 which occurred on or after the
initiation of his term as a director. Each director who served on the Executive
Compensation and Stock Option Committee also attended at least 75% of such
committee's meetings held during Fiscal 97 which occurred on or after the
initiation of his term as a director.
During Fiscal 97, the Board 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 has all of the authority of the Board 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 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 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;
(vii) the appointment of other committees of the Board or the members thereof;
and (viii) the termination of any officer. The Executive Committee, which
consisted of Messrs. Jenkins and Olson and Dr. Katz during Fiscal 97, held no
meetings during Fiscal 97. The Executive Committee currently consists of Messrs.
Agersborg, Jenkins, Olson, Samuels, Towle and Yakatan. Messrs. Agersborg,
Jenkins and Towle have resigned as directors conditioned on approval of
Proposals One and Two and their successors being duly elected.
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 regarding appointment
of independent auditors. The Audit Committee currently consists of Mr. Jenkins
and Mr. Olson. Mr. Jenkins has resigned as a director conditioned on approval of
Proposals One and Two and his successor being duly elected. The Board intends to
fill the vacancy created by the resignation of Mr. Jenkins immediately after the
1998 Annual Meeting. The Audit Committee held one meeting during Fiscal 97.
The Executive Compensation and Stock Option Committee currently consists of
Messrs. Olson and Towle. Mr. Towle has resigned as a director conditioned on
approval of Proposals One and Two and his successor being duly elected. The
Board intends to fill the vacancy created by the resignation of Mr. Towle
immediately after the 1998 Annual Meeting. 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 one meeting during Fiscal 97.
The Technology Review Committee currently consists of Messrs. Agersborg and
Samuels. Mr. Agersborg has resigned as a director conditioned on approval of
Proposals One and Two and his successor being duly elected. 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. The Technology Review Committee held one meeting during
Fiscal 97.
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PROPOSAL FOUR
RATIFICATION OF INDEPENDENT AUDITORS
(ITEM 4 ON THE PROXY CARD)
The Board has selected Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ending September 30, 1998, 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 Bylaws or
otherwise. The Board 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 will reconsider
whether or not to retain that firm. Even if the selection is ratified, the Board
in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such a
change could be in the best interests of the Company and the 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 FISCAL YEAR ENDING SEPTEMBER 30, 1998.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership (as defined by Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of the Company's voting shares (Class A Shares
and Class B Shares) as of April 20, 1998 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) each person or "group" of persons
(as defined under Section 13(d)(3) of the Exchange Act) 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 voting and sole investment power with respect to
the Shares beneficially owned, subject to community property laws where
applicable.
AMOUNT AND PERCENT OF
NAME AND ADDRESS OF NATURE OF TOTAL
BENEFICIAL OWNER BENEFICIAL PERCENT OF VOTING
TITLE OF CLASS OR IDENTITY OF GROUP(1) OWNERSHIP(2) CLASS(2) POWER(3)
-------------- ----------------------- ------------- ---------- ----------
Class A Common Stock David H. Katz(4)(5) 3,344,361 7.91% 11.90%(a)
Class B Common Stock 385,000 88.71%
Class A Common Stock HealthMed, Inc.(6) 1,478,003 3.71% 3.67%(a)
Class B Common Stock -- --
Class A Common Stock George P. Rutland(7) 100,000 * *(a)
Class B Common Stock -- --
Class A Common Stock Edward L. Hennessy, Jr. 50,000 * *(a)
Class B Common Stock -- --
Class A Common Stock HealthMed Group(8) 2,246,705 5.64% 5.61%(a)
Class B Common Stock -- --
Class A Common Stock William N. Jenkins(9)(10) 277,000 * *
Class B Common Stock 16,000 24.62%
Class A Common Stock Kenneth E. Olson(11)(12) 223,400 * *
Class B Common Stock 16,000 24.62%
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AMOUNT AND PERCENT OF
NAME AND ADDRESS OF NATURE OF TOTAL
BENEFICIAL OWNER BENEFICIAL PERCENT OF VOTING
TITLE OF CLASS OR IDENTITY OF GROUP(1) OWNERSHIP(2) CLASS(2) POWER(3)
-------------- ----------------------- ------------- ---------- ----------
Class A Common Stock Stuart A. Samuels(13) 45,000 * *
Class B Common Stock -- --
Class A Common Stock Sidney N. Towle, Jr.(14) 177,000 * *
Class B Common Stock -- --
Class A Common Stock Helmer P.K. Agersborg, Jr.(15) 70,000 * *
Class B Common Stock -- --
Class A Common Stock Gerald J. Yakatan(16) 222,591 * *
Class B Common Stock -- --
Class A Common Stock Dennis J. Carlo -- * *
Class B Common Stock -- --
Class A Common Stock Michael W. George -- * *
Class B Common Stock -- --
Class A Common Stock Joseph E. Smith -- * *
Class B Common Stock -- --
Class A Common Stock Timothy R. Russell(17) 200,148 * *
Class B Common Stock -- --
Class A Common Stock James E. Berg(18) 99,852 * *
Class B Common Stock -- --
Class A Common Stock Jeffery B. Weinress(19) 20,000 * *
Class B Common Stock -- --
Class A Common Stock All officers and directors as a 4,679,352 10.77% 14.79%
Class B Common Stock group (ten persons)(20)(21) 417,000 93.00%
- ---------------
* Percentage of shares beneficially owned does not exceed 1%.
(a) Because of the definition of "beneficial ownership" under the Exchange Act
certain shares of Common Stock are shown in the Table to be beneficially
owned by both Dr. David H. Katz and HealthMed. See Notes (3)-(6) below. In
addition, certain shares of Class A Common Stock shown to be beneficially
owned by the HealthMed Group are also shown to be owned by the individual
members of the HealthMed Group. See Notes (6)-(8) below. (These various
shares are, in effect, shown twice)
(1) The address for all persons shown, except Dr. Katz and HealthMed, is c/o
LIDAK Pharmaceuticals, 11077 North Torrey Pines Road, La Jolla, California
92037. The address for Dr. Katz is c/o Medical Biology Institute, 11077
North Torrey Pines Road, La Jolla, California 92037. The address for
HealthMed and the Health Med Group is 8306 Wilshire Boulevard, Suite 7056,
Beverly Hills, California 90211.
(2) Based upon 39,812,017 shares of Class A Common Stock and 49,000 shares of
Class B Common Stock outstanding as of April 20, 1998, 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 of April 20, 1998.
(3) Percentage of total voting power is based upon total cumulative voting
power of Class A Common Stock and Class B Common Stock combined as of June
19, 1998 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 and convertible
securities exercisable or convertible within 60 days of April 20, 1998 held
by such holder and the nonexercise and nonconversion of all other
outstanding warrants, options and convertible securities.
(4) Includes options to purchase 1,876,616 shares of Class A Common Stock and
386,190 shares of Class A Common Stock issuable upon exercise of Class D
Warrants. Also includes options to purchase 46,952 shares of Class A Common
Stock held by a member of his family. Does not include options to purchase
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30,384 shares of Class A Common Stock and options to purchase 7,048 shares
of Class A Common Stock held by a member of his family which are not
exercisable within 60 days of April 20, 1998.
Pursuant to his Schedule 13D dated January 12, 1998, as amended by
Amendment No. 1 thereto dated March 27, 1998 (the "Katz Schedule 13D"),
filed by Dr. Katz with the Securities Exchange Commission (the "SEC"), Dr.
Katz has stated that he is a party to a Voting Trust Agreement dated
January 12, 1998 between Dr. Katz and HealthMed (the "Katz Voting Trust
Agreement"). Dr. Katz further stated that he has transferred 718,903
shares of Class A Common Stock and 163,800 shares of Class B Common Stock
(which convert to Class A Shares upon transfer) to this voting trust, of
which HealthMed, as trustee, exercises sole voting power; that he has
retained the right to dispose of these shares through public sales with
prior notice to the trustee, but may not dispose of more than 20% of such
shares in any 30 day period; that all shares of Class A and Class B Common
Stock which Dr. Katz purchases or receives during the term of the
Agreement must be placed in the voting trust; and that the term of the
Katz Voting Trust Agreement is ten years. Because HealthMed exercises sole
voting power over such shares, HealthMed also is shown as a beneficial
owner of these same shares in this Table. On April 11, 1998, Dr. Katz
filed suit against HealthMed seeking rescission of his transfer of shares
to HealthMed (including the shares transferred into the Katz Voting
Trust), monetary damages and other relief.
Also pursuant to the Katz Schedule 13D, Dr. Katz has stated that he is
President, Chief Executive Officer and a director of Medical Biology
Institute, a California nonprofit public benefit corporation ("MBI"); that
on January 12, 1998 MBI transferred 151,900 shares of Class A Common Stock
into a voting trust (the "MBI Voting Trust") of which HealthMed, as
trustee, exercises sole voting power; that MBI has retained the power to
dispose of these shares through public sales with prior notice to the
trustee, but may not dispose of more than 20% of such shares in any 30 day
period; that all shares of the Company's Common Stock which MBI purchases
or receives during the term of the voting trust agreement must be placed
in the MBI Voting Trust; that the term of the voting trust agreement is
ten years; and that Dr. Katz is deemed to beneficially own these 151,900
shares of Class A Common Stock. Because HealthMed exercises sole voting
power over such shares, HealthMed also is shown as a beneficial owner of
these same shares in this Table. On April 11, 1998, MBI filed suit against
HealthMed seeking rescission of its transfer of shares to HealthMed
(including the shares transferred into the MBI Voting Trust) and other
relief.
(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. See Note 4.
(6) Pursuant to Amendment No. 2 to Schedule 13D dated March 25, 1998 filed by
HealthMed with the SEC (the "HealthMed Schedule 13D"), HealthMed has stated
that it acquired an aggregate of 443,400 shares of Class A Common Stock on
January 12, 1998 from Dr. Katz and MBI. HealthMed stated in the HealthMed
Schedule 13D that it exercises sole voting and dispositive power over such
shares.
Also in the HealthMed Schedule 13D, HealthMed has stated that it has sole
voting power, as trustee, over 882,703 shares of the Company's Class A
Common Stock, which were transferred to a voting trust by Dr. David Katz
under a Voting Trust Agreement between HealthMed and Dr. Katz dated
January 12, 1998. HealthMed further stated that Dr. Katz has retained the
power to dispose of the shares through public sales with prior notice to
the trustee, but may not dispose of more than 20% of such shares during
any 30 day period, and that the term of this Voting Trust Agreement is ten
years. Because Dr. Katz retains the power to dispose of these shares, he
also is listed as a beneficial owner of these same shares in this Table.
Also in the HealthMed Schedule 13D, HealthMed stated that pursuant to a
Purchase Rights Agreement dated January 12, 1998 between HealthMed and Dr.
Katz, HealthMed has the right to receive either (i) 31.5% of the shares
received by Dr. Katz upon the exercise of his outstanding stock options to
purchase 1,918,400 shares of Class A Common Stock (according to the
Purchase Rights Agreement, or 1,877,000 according to information
subsequently provided by or on behalf of Dr. Katz)
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and 375,000 shares of Class B Common Stock (which convert to Class A upon
transfer) or (ii) 31.5% of the net proceeds from the sale of such shares.
HealthMed further stated that because these options are exercisable within
60 days, HealthMed may be the beneficial owner of up to 722,421 additional
shares of Class A Common Stock. Based solely on its review of the
HealthMed Schedule 13D, the Company believes that HealthMed does not
currently have the right to cause Dr. Katz to exercise his options or
warrants, and absent such right, HealthMed should not be deemed to be a
beneficial owner of these shares.
Also in the HealthMed Schedule 13D, HealthMed stated that, pursuant to a
Voting Trust Agreement dated January 12, 1998 between HealthMed and MBI,
HealthMed has sole voting power, as trustee, over 151,900 shares of Class
A Common Stock which MBI transferred to a voting trust. HealthMed further
stated that MBI has retained the power to dispose of all of such shares
held in the trust through public sales with prior notice to the trustee,
but may not dispose of more than 20% of such shares during any 30 day
period, and that the term of this Voting Trust Agreement is ten years. As
noted in Note (4) above, Dr. Katz has stated in the Katz Schedule 13D
that, as President, Chief Executive Officer and a director of MBI, he is
deemed to be a beneficial owner of these 151,900 shares. Accordingly, Dr.
Katz also is shown to be the beneficial owner of these same shares in this
Table.
(7) Includes 88,000 shares of Class A Common Stock over which Mr. Rutland
exercises sole voting and investment power, and 12,000 shares of Class A
Common Stock over which Mr. Rutland exercises shared voting and investment
power with his wife.
(8) Pursuant to the HealthMed Schedule 13D, HealthMed stated that it is a
member of a "group" (as defined under Section 13(d)(3) of the Exchange
Act), consisting of HealthMed, Mitchell J. Stein, National Trust
Properties, Inc., The Trammel Trust, Edward L. Hennessy, Jr., George P.
Rutland and Wallace O. Raubenheimer (the "HealthMed Group"). Based solely
upon its review of the HealthMed Schedule 13D, the Company believes that
the HealthMed Group beneficially owns 2,246,705 shares of the Company's
Class A Common Stock, as follows: HealthMed, 1,478,003 shares (See Note (6)
above); George P. Rutland, 100,000 shares (See Note (7) above); Edward L.
Hennessy, Jr., 50,000 shares; and Wallace O. Raubenheimer, 618,702 shares.
As indicated in the HealthMed Schedule 13D, of the shares beneficially
owned by Mr. Raubenheimer, Mr. Raubenheimer exercises sole voting and
investment power over 144,134 shares of outstanding Class A Common Stock
and 106,668 shares of Class A Common Stock issuable upon the exercise of
Class D Warrants, and Mr. Raubenheimer disclaims beneficial ownership of
367,900 shares of Class A Common Stock, which are owned by Mr.
Raubenheimer's wife. As indicated in the HealthMed Schedule 13D, Mitchell
J. Stein, as President, CEO and a director of HealthMed, may be deemed to
be a beneficial owner of the shares beneficially owned by HealthMed (the
"HealthMed Shares"), but he disclaims beneficial ownership of such shares;
National Trust Properties, Inc., as the sole shareholder of HealthMed, may
be deemed to be beneficial owner of the HealthMed Shares, but it disclaims
beneficial ownership of such shares; and The Trammel Trust, as the sole
shareholder of National Trust Properties, Inc., may be deemed to be the
beneficial owner of the HealthMed Shares, but it disclaims beneficial
ownership of such shares. Each of HealthMed (including Mr. Stein, National
Trust Properties, Inc. and The Trammel Trust) and Messrs. Hennessy,
Raubenheimer and Rutland disclaims beneficial ownership in any shares
beneficially owned by the other members of the HealthMed Group. The shares
shown in this Table as being beneficially owned by each of HealthMed and
Messrs. Hennessy and Rutland, individually, also are included in the same
shares shown in this Table as being beneficially owned in the aggregate by
the HealthMed Group.
(9) Includes options to purchase 277,000 shares of Class A Common Stock. Does
not include options to purchase 10,000 shares of Class A Common Stock which
are not exercisable within 60 days of April 20, 1998.
(10) Includes options to purchase 16,000 shares of Class B Common Stock.
(11) Includes options to purchase 187,000 shares of Class A Common Stock. Does
not include options to purchase 10,000 shares of Class A Common Stock which
are not exercisable within 60 days of April 20, 1998.
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23
(12) Includes options to purchase 16,000 shares of Class B Common Stock.
(13) Includes options to purchase 45,000 shares of Class A Common Stock. Does
not include options to purchase 10,000 shares of Class A Common Stock which
are not exercisable within 60 days of April 20, 1998.
(14) Includes options to purchase 177,000 shares of Class A Common Stock. Does
not include options to purchase 10,000 shares of Class A Common Stock which
are not exercisable within 60 days of April 20, 1998.
(15) Includes options to purchase 70,000 shares of Class A Common Stock. Does
not include options to purchase 10,000 shares of Class A Common Stock which
are not exercisable within 60 days of April 20, 1998.
(16) Includes options to purchase 222,591 shares of Class A Common Stock. Does
not include options to purchase 28,914 shares of Class A Common Stock which
are not exercisable within 60 days of April 20, 1998.
(17) Includes options to purchase 195,148 shares of Class A Common Stock. Does
not include options to purchase 14,852 shares of Class A Common Stock which
are not exercisable within 60 days of April 20, 1998.
(18) Includes options to purchase 99,852 shares of Class A Common Stock. Does
not include options to purchase 14,852 shares of Class A Common Stock which
are not exercisable within 60 days of April 20, 1998.
(19) Includes options to purchase 20,000 shares of Class A Common Stock. Does
not include options to purchase 80,000 shares of Class A Common Stock which
are not exercisable within 60 days of April 20, 1998.
(20) Includes 1,076,003 shares of Class A Common Stock and options and warrants
to purchase an aggregate of 3,603,349 shares of Class A Common Stock. Does
not include options to purchase 224,509 shares of Class A Common Stock
which are not exercisable within 60 days of April 20, 1998.
(21) Includes 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 Exchange Act of 1934 requires the Company's executive
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
beneficial ownership and changes in beneficial ownership with the SEC. Executive
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
executive officers, directors and greater than ten percent shareholders were
complied with in Fiscal 97.
EXECUTIVE COMPENSATION
Directors who are not otherwise employed by the Company ("Outside
Directors"), other than Mr. Jenkins, are paid a retainer of $500 per month. Mr.
Jenkins, Chairman of the Board, received a monthly retainer of $2,500 through
January 11, 1998, which was increased by the Board to $5,000 per month while the
discussions about the potential HealthMed financing proposal were under
consideration by the Company and until such increase may be discontinued by the
Board. All Outside Directors receive $1,500 for attendance at each regular
meeting of the Board, $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. In January 1998, the Board constituted a Special Committee of
Independent Directors (the "Special Committee") to evaluate the HealthMed
financing
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proposal. Members of the Special Committee receive $750 for attendance at each
Special Committee meeting, and $1,500 per day if the director spends more than
four hours on a given day at the direction of the Special Committee on the work
of the Special Committee (inclusive of any fees payable in respect of a special
meeting or committee meeting attended on the same day). Directors who are also
employees (currently only Dr. Yakatan) receive no compensation for services as a
member of the Board.
In March 1994, the shareholders of the Company approved the Company's 1994
Stock Option Plan (the "1994 Option Plan"). The 1994 Option Plan provides that
non-employee directors are automatically granted options to purchase 10,000
Class A Shares of the Company's Common Stock on the date of the Company's annual
meeting each year. The options granted at such time have an exercise price equal
to the fair market value of the Class A Shares on the date of grant, vest
ratably 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 amendment 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 persons who are eligible for the grant of ISOs; or (iii) if required by Rule
16b-3 (or any successor) under the Exchange Act, would materially increase the
benefits accruing to participants under the 1994 Option Plan or would materially
modify the requirements as to eligibility for participation in the 1994 Option
Plan. If elected pursuant to Proposal Three, the incoming new directors (Messrs.
Carlo, George, Hennessy, Rutland and Smith) will each receive a total of 35,000
stock options upon election, consisting of the above-referenced annual 10,000
option grant under the 1994 Option Plan and a separate grant of 25,000 options.
In March 1997, Messrs. Agersborg, Jenkins, Olson, Samuels and Towle each
received stock options to purchase 10,000 Class A Shares at an exercise price of
$2.25 per share pursuant to the 1994 Option Plan.
In March 1998, the Company entered into an employment agreement with Dr.
Yakatan and Retention Agreements with certain other executive officers which are
described in more detail below under "Compensation of Executive
Officers -- Employment Contracts, Retention Agreements and Termination of
Employment Arrangements."
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following executive compensation disclosures reflect all compensation
awarded to, earned by or paid to the named executive officers of the Company for
the fiscal years ended September 30, 1997, 1996, and 1995. The named executive
officers (the "Named Executive Officers") are the Company's Chief Executive
Officer ("CEO"), regardless of compensation level, and the other executive
officers of the Company who received in excess of $100,000 in total annual
salary and bonus for Fiscal 97. Gerald J. Yakatan was appointed President and
CEO of the Company on March 4, 1998, following the termination of David H. Katz
as the Company's President and CEO.
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SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-----------------------------------------
OTHER RESTRICTED
ANNUAL STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($) COMPENSATION($) AWARDS($)(3)
- --------------------------- ---- ------------ -------- --------------- ------------
Gerald J. Yakatan(1)..... 1997 111,693 -- -- --
President and Chief.... 1996 104,723 -- -- --
Executive Officer...... 1995 21,154 -- -- --
Timothy R. Russell....... 1997 177,031 -- -- --
Vice President of...... 1996 168,046 -- -- --
Business Development and
Licensing............ 1995 161,949 -- -- --
James E. Berg............ 1997 110,792 -- -- --
Vice President of...... 1996 99,705 -- -- --
Clinical Affairs and
Product Development.. 1995 92,000 -- -- --
David H. Katz(6)....... 1997 232,200 -- -- --
Former President and... 1996 228,000 -- -- --
Chief Executive
Officer.............. 1995 228,000 -- -- --
LONG TERM COMPENSATION
--------------------------------------------
SECURITIES PAYOUTS ALL
UNDERLYING ------------- OTHER
OPTIONS/ LTP COMPENSATION
NAME AND PRINCIPAL POSITION SARS(#)(4) PAYOUTS($)(5) ($)
- --------------------------- ---------- ------------- ---------------
Gerald J. Yakatan(1)..... 15,000 -- --
President and Chief.... 25,000 -- --
Executive Officer...... 100,000 -- --
Timothy R. Russell....... 15,000 -- --
Vice President of...... 25,000 -- --
Business Development and
Licensing............ 15,000 -- --
James E. Berg............ 25,000 -- --
Vice President of...... 3,000 -- --
Clinical Affairs and
Product Development.. 6,000 -- --
David H. Katz(6)....... 30,000 -- --
Former President and... -- -- --
Chief Executive
Officer.............. 30,000 -- --
- ---------------
(1) Dr. Yakatan's salary for the periods shown was based on his allocating 50%
of his time to the Company and 50% of his time to other endeavors while he
was employed as the Company's Vice President of Drug Development. Commencing
with his employment as President and Chief Executive Officer on March 4,
1998, Dr. Yakatan's salary was raised to $300,000 for full-time service.
(2) Amounts shown include compensation earned and received by Named Executive
Officers. No amounts were earned but deferred at the election of those
officers.
(3) The Company has not made any Restricted Stock Awards.
(4) The Company has not made any grants of SARs.
(5) The Company has not made any Long Term Incentive Plan ("LTIP") Payouts.
(6) Dr. Katz' salary was based on his allocating 75% of his time to the Company
and 25% to MBI. See "Employment Contracts and Termination of Employment
Agreements."
STOCK OPTION GRANTS
The following table shows all individual grants of stock options to the
Named Executive Officers during Fiscal 97.
OPTION/SAR GRANTS IN FISCAL 97
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
OPTIONS/SARS EXERCISE APPRECIATION FOR
GRANTED TO OR BASE OPTION TERMS(3)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE 5% 10%
---- ------------- ------------ --------- ---------- -------- --------
Gerald J. Yakatan.......... 15,000 3% 2.25 03/15/07 $21,225 $53,789
Timothy R. Russell......... 15,000 3% 2.25 03/15/07 $21,225 $53,789
James E. Berg.............. 10,000 2% 1.4688 11/09/06 $ 9,237 $23,409
15,000 3% 2.25 03/15/07 $21,225 $53,789
David H. Katz.............. 30,000 6% 1.875 06/21/07 $35,375 $89,648
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(1) These options vest over three years, with the first one-third vesting in its
entirety on the first anniversary of the date of grant, and the remaining
two-thirds vesting during the next two years on a daily basis. Vesting may
be accelerated and the options may be repriced at the discretion of the
Board. In the event of a specified corporate transaction such as a
dissolution, merger or other reorganization of the Company in which more
than 50% of the Company's stock is exchanged, vesting on such options shall
be accelerated
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unless the surviving corporation assumes the options outstanding,
substitutes similar rights for outstanding options, or the options shall
continue.
(2) Market price on date of grant.
(3) The potential realizable value is calculated by assuming that the stock
price on the date of grant appreciates at the indicated rate, compounded
annually, for the entire term of the option and that the option is exercised
and sold on the last day of its term at this appreciated stock price.
OPTION EXERCISES IN FISCAL 97
Set forth below is information with respect to exercises of stock options
by the Named Executive Officers during Fiscal 97 and the fiscal year-end value
of all unexercised stock options held by such persons.
AGGREGATED OPTION EXERCISES IN FISCAL 97 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS HELD AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Gerald J. Yakatan.... -- -- 115,048 24,952 $ 1,032 $ 1,780
Timothy R. Russell... -- -- 192,994 17,006 $124,783 $ 1,780
James E. Berg........ -- -- 98,292 15,708 $ 38,703 $ 6,796
David H. Katz........ -- -- 2,252,000 30,000 $909,375 $16,875
- ---------------
(1) Based upon the closing bid price of the Company's Common Stock of $2.4375
quoted on the NASDAQ National Market System on September 30, 1997.
EMPLOYMENT CONTRACTS, RETENTION AGREEMENTS AND TERMINATION OF EMPLOYMENT
ARRANGEMENTS
In March 1998, the Company entered into an employment agreement with Dr.
Gerald J. Yakatan, the Company's President and Chief Executive Officer. Dr.
Yakatan's employment agreement provides that Dr. Yakatan's employment with the
Company is "at-will," subject to the discretion of the Board, Dr. Yakatan's
annual base salary is Three Hundred Thousand Dollars ($300,000), and he is
eligible for a discretionary incentive bonus. Dr. Yakatan received a grant of
300,000 stock options pursuant to the 1994 Option Plan, at an exercise price
equal to $1.8125 (the fair market value of the Company's Class A Common Stock on
the date of the grant), of which 103,389 consisted of non-qualified stock
options and 196,611 consisted of incentive stock options. Stock options
exercisable into 100,000 shares of Class A Common Stock vest immediately, with
the remainder of the stock options vesting in four equal annual increments of
50,000 per year on the anniversary date of Dr. Yakatan's employment, commencing
on March 4, 1999.
In the event of a "Change of Control Termination" (as defined below) in the
first three years of Dr. Yakatan's employment, or in the event Mr. Yakatan is
otherwise terminated without cause as defined in the agreement, Dr. Yakatan is
eligible for severance in an amount equal to twelve (12) months of base salary
paid over a twelve (12) month period in exchange for his execution of a release
of all claims effective as of the termination date. In the event of a
termination without cause of the employment relationship or in the event of a
"Change of Control Termination" which occurs after the first year of employment,
vesting of the unvested options described above will be accelerated to include
options that would otherwise have vested had Dr. Yakatan remained an employee of
the Company for an additional twelve (12) months. In the event of a "Change of
Control Termination" of the employment relationship in the first year of
employment, vesting of the options described above will be accelerated to
include options that would otherwise have vested had Mr. Yakatan remained an
employee of the Company for an additional twenty four (24) months. In the event
of a "Change of Control Termination" within Dr. Yakatan's first year of
employment, upon Dr. Yakatan's request, he will have up to twelve (12) months
following the date of termination to exercise any vested options. In the event
of any other termination of Dr. Yakatan's employment, Dr Yakatan's vested
options will be exercisable in all respects in accordance with the terms of the
1994 Option Plan.
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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 on September 19, 1989 and October 8, 1989, respectively (the "1988
Employment Agreement"). On March 4, 1998, David H. Katz, M.D. was terminated for
cause as President and CEO of the Company. The 1993 Employment Agreement
provided that Dr. Katz's employment with the Company was on an "at will" basis,
subject to the discretion of the Board, for an annual base salary of $207,692.
Dr. Katz's salary was based on his allocating 75% of his time to the Company and
25% to MBI. Dr. Katz's salary was reviewed by the Compensation Committee of the
Board of the Company from time to time to determine, within the Board's
discretion, whether an increase was appropriate. In March 1994 and June 1997,
the board increased Dr. Katz's annual base salary to $228,000 and $240,000,
respectively. Dr. Katz was also entitled to all benefits generally available to
the Company's employees. Under the 1993 Employment Agreement, in the event that
Dr. Katz had been terminated for any reason other than cause, Dr. Katz would
have been entitled to receive a severance payment in the amount of his annual
base salary, payable over twelve months.
The 1993 Employment Agreement further provided that, except for Dr. Katz's
involvement with MBI, Dr. Katz's services were to be exclusive to the Company.
The terms of the 1993 Employment Agreement prohibited 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 was fully disclosed to the
Company and approved by the Company's Board of Directors.
In April 1998, the Company entered into Retention Agreements (the
"Retention Agreements") with certain of its vice president and director level
employees, including Messrs. Berg and Russell. In the event of a termination of
the employee's employment within one (1) year of execution of the agreement
related to a "Change of Control Termination", as defined below, (1) the employee
is eligible for severance in an amount equal to twelve (12) months of base
salary, plus cost of health insurance, paid over a twelve (12) month period in
exchange for his execution of a release of all claims effective as of the
termination date.
For purposes of both Dr. Yakatan's employment agreement and the Retention
Agreements, "Change of Control Termination" of the employment relationship
occurs where the employee is (i) terminated without "Cause" or (ii) "Resigns for
Good Reason", within twelve (12) months following a "Change of Control". "Change
of Control" is defined to have occurred if, and only if, during the applicable
period: (1) any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity or person, or any syndicate or group
deemed to be a person under Section 14(d)(2) of the Exchange Act is or becomes
the "Beneficial Owner" (as defined in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities entitled to vote in the election of
directors of the Company; (2) the following persons cease to constitute a
majority of the Board: (a) individuals who constituted the Board at the
beginning of the Term (the "Incumbent Directors"); (b) individuals (the "New
Directors") who were elected by, or whose nomination for election by the
Company's shareholders was approved by a majority of the Incumbent Directors;
and (c) individuals who were elected by, or whose nomination for election by the
Company's shareholders was approved by, a majority of the Incumbent Directors
and the New Directors still serving as Board Members at the time of such
election; (3) there occurs a reorganization, merger, consolidation or other
corporate transaction involving the Company ("Transaction"), in each case, with
respect to which the stockholders of the Company immediately prior to such
Transaction do not, immediately after the Transaction, own more than fifty
percent (50%) of the combined voting power of the Company or other corporation
resulting from such Transaction; or (4) all or substantially all of the assets
of the Company are sold, liquidated or distributed. "Resignation for Good
Reason" is defined as resignation based on (1) a meaningful and detrimental
alteration in the employee's position or the nature or status of the employee's
responsibilities and reporting relationship from those in effect upon execution
of this Agreement; (2) the assignment to the employee of any duties inconsistent
with his status as an executive officer of Company; (3) a reduction by the
Company in the employee's Base Salary by greater than five percent (5%), except
to the extent the base salaries of other executive officers of the Company are
accordingly reduced; (4) a relocation of the employee's or the Company's
principal executive offices to a location outside
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San Diego County, if the employee's principal office is at such offices, without
reimbursement of relocation costs; and (5) any other conduct which satisfies the
requirements for "constructive termination" as that term is defined under
California law.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
David H. Katz, former President and CEO and a director 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 the 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.
In February 1998, the Company received correspondence from MBI asserting
certain concerns related to its license agreement with LIDAK and certain
unspecified rights to LIDAKOL(TM) which possibly give rise to an "equitable lien
and constructive trust" on any proceeds of the development of LIDAKOL. The
Company believes MBI's assertions to be without merit and recently filed
litigation seeking declaratory relief and initiated an arbitration proceeding to
affirm its position. MBI has filed a cross-complaint in the litigation which
disputes LIDAK's proprietary rights and asserts ownership rights to LIDAKOL.
(LIDAKOL is the Company's leading drug candidate for which a New Drug
Application recently has been submitted to the Food and Drug Administration for
marketing approval.)
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 Fiscal 97, the Company incurred charges to MBI totaling
$448,251 and $223,262, respectively, under these agreements.
In addition, during Fiscal 97, Dr. Katz's wife was employed by the Company
as a scientist at an annual salary of approximately $80,000 plus employee
benefits, and Dr. Katz's daughter was employed in the Company's Investor
Relations Department at an annual salary of approximately $50,000 plus employee
benefits, which was raised to $67,000 in November 1997. The Company's employment
of Dr. Katz's wife and daughter was terminated in March, 1998.
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Executive Compensation and Stock Option Committee (the "Committee")
recommends to the Board compensation for the Company's 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 the Company's 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
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of the shareholders with respect to the long term performance and success of the
Company. The Committee generally 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 attempts
to address 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
As discussed above under "Employment Contracts and Termination of
Employment Agreements," the Company has entered into an employment agreement
with Dr. Yakatan which provides for an annual base salary of $300,000 and the
grant of 300,000 stock options, among other terms and conditions.
Also as discussed above under "Employment Contracts and Termination of
Employment Agreements," 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, based on Dr. Katz' allocating 75% of his time to the Company. In
March 1994, the Board increased this base salary to $228,000 and in June 1997,
the Board increased this base salary to $240,000. Dr. Katz was terminated as the
President and CEO of the Company on March 4, 1998.
COMPENSATION ARRANGEMENTS GENERALLY
Overall, the Committee believes that 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 positions 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.
Executive Compensation and
Stock Option Committee
Kenneth E. Olson
Sidney N. Towle
April 20, 1998
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, as amended, or the
Exchange Act, except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such acts.
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PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Class A Common Stock from September 30, 1992 to September 30, 1997
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
MEASUREMENT PERIOD LIDAK NASDAQ STOCK NASDAQ
(FISCAL YEAR COVERED) PHARMACEUTICALS MARKET - US PHARMACEUTICAL
SEP-92 100 100 100
SEP-93 789 131 100
SEP-94 234 132 87
SEP-95 446 182 128
SEP-96 166 216 154
SEP-97 226 297 172
- ---------------
* The graph assumes that $100.00 was invested in the Company's Class A Common
Stock and in each index on September 30, 1992.
** The total return for the Company's Class A Common Stock and the indices used
assumes the reinvestment of dividends. No dividends have been declared on the
Company's Class A Common Stock.
Pursuant to SEC regulations, this chart is not "soliciting material", is
not deemed filed with the SEC, and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as amended, or the
Exchange Act.
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 Annual Meeting or
any adjournment thereof, it is the intention of the persons named in the
enclosed proxy to vote the shares they represent in accordance with their
judgment. In order for any shareholder to nominate a candidate or to submit a
proposal for other business to be acted upon at the 1998 Annual Meeting, he or
she must provide the Secretary of the Company with not less than ten (10) days'
advance written notice thereof in the form prescribed by the Company's Bylaws.
See "Notice of Shareholder Proposals."
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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 November 17, 1998, and must satisfy the conditions
established by the SEC 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 Fiscal 97 is being mailed with
this proxy statement to shareholders entitled to notice of the Annual Meeting.
At any shareholder's written request, the Company will provide without charge, a
copy of the Company's Annual Report on Form 10-K for Fiscal 97, as filed with
the SEC, 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.
Each shareholder is urged to complete, date, sign and promptly return the
enclosed proxy card.
By Order of the Board of Directors
/s/ JEFFERY B. WEINRESS
JEFFERY B. WEINRESS
Secretary
La Jolla, California
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EXHIBIT A
FIFTH AMENDMENT TO THE RESTATED AND AMENDED
BYLAWS OF LIDAK PHARMACEUTICALS
TO INCREASE AUTHORIZED NUMBER OF DIRECTORS
Article III, Section 3.2 of the Bylaws of LIDAK Pharmaceuticals is amended
and restated in its entirety to read as follows:
"Section 3.2 Number and Qualification of Directors.
The number of directors of the Corporation shall not be less than five nor
more than nine (which in no case shall be greater than two times the stated
minimum minus one) until changed by a bylaw amending this Paragraph 3.2 duly
adopted by a vote or written consent of the holders of a majority of the
outstanding shares entitled to vote, provided that a proposal to reduce the
authorized number or the minimum number of directors below five cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of action by written consent, are equal to more than
16 2/3 percent of the outstanding shares entitled to vote. The exact number of
directors shall be fixed from time to time within the limits specified in this
Paragraph 3.2 by the Board of Directors. Subject to the foregoing provisions for
changing the number of directors, the initial number of directors of this
Corporation has been fixed at nine."
EXHIBIT B
FIFTH AMENDMENT TO THE RESTATED AND AMENDED
BYLAWS OF LIDAK PHARMACEUTICALS
TO ESTABLISH A CLASSIFIED BOARD
Article III, Section 3.3 of the Bylaws of LIDAK Pharmaceuticals is amended
and restated in its entirety to read as follows:
"Section 3.3 Election, Term of Office.
The directors shall be divided into three classes, designated Class I,
Class II and Class III as nearly equal in number as reasonably possible, with
any overage allocated in the discretion of the Board of Directors. The initial
term of office of the Class I directors will expire at the 1999 annual meeting
of shareholders. The initial term of office of the Class II directors will
expire at the 2000 annual meeting of shareholders. The initial term of office of
the Class III directors will expire at the 2001 annual meeting of shareholders.
At the 1998 annual meeting of shareholders and at each annual meeting of
shareholders thereafter, directors shall be elected, to succeed directors of the
class whose terms expires, for a term of office to expire at the second
succeeding annual meeting after their election. All directors, including
directors elected to fill vacancies, shall hold office until the expiration of
the term for which elected and until their successors are elected and qualified,
except in the case of death, resignation or removal of any director."
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LIDAK PHARMACEUTICALS
11077 North Torrey Pines Road
La Jolla, California 92037
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Gerald J. Yakatan and
Jeffery B. Weinress, and each of them, his true and lawful agents and proxies
with full power of substitution in each, to represent the undersigned at the
Annual Meeting of Stockholders of LIDAK Pharmaceuticals to be held at San Diego
Hilton Beach & Tennis Resort at 1775 East Mission Bay Drive, San Diego,
California 92109, on June 8, 1998, at 1:30 p.m., local time, and at any
adjournments thereof, and to vote as designated.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE AMENDMENT TO THE COMPANY'S BYLAWS TO EXPAND THE AUTHORIZED NUMBER OF
DIRECTORS, "FOR" THE AMENDMENT TO THE COMPANY'S BYLAWS TO EXPAND THE NUMBER OF
CLASSES OF DIRECTORS, "FOR" ALL NOMINEES TO THE BOARD OF DIRECTORS, AND "FOR"
THE RATIFICATION OF INDEPENDENT AUDITORS AND AS THE PROXY HOLDER MAY DETERMINE
IN HIS DISCRETION WITH REGARD TO ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE
MEETING. IN THE EVENT THAT PROPOSALS ONE AND TWO ARE NOT APPROVED BY THE BOARD,
THE ANNUAL MEETING WILL BE ADJOURNED AND NO VOTE WILL PROCEED ON PROPOSALS
THREE AND FOUR.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
YOUR VOTE IS IMPORTANT! PLEASE VOTE.
(Continued on reverse side)
34
BACK OF CARD
- --------------------------------------------------------------------------------
1. AMEND THE BYLAWS TO EXPAND THE AUTHORIZED NUMBER OF DIRECTORS
Vote For [ ] Vote Against [ ] Abstain [ ]
2. AMEND THE BYLAWS TO EXPAND THE NUMBER OF CLASSES OF DIRECTORS
Vote For [ ] Vote Against [ ] Abstain [ ]
3. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below.
[ ] FOR all nominees listed below except as marked to the contrary.
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
Withhold Authority
For Specific Nominee
Nominees: 1. Michael W. George (Class I) _____________
2. Dennis J. Carlo, Ph.D. (Class II) _____________
3. Edward L. Hennessy, Jr. (Class II) _____________
4. Stuart A. Samuels (Class II) _____________
5. Kenneth E. Olson (Class III) _____________
6. George P. Rutland (Class III) _____________
7. Joseph E. Smith (Class III) _____________
4. RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
Vote For [ ] Vote Against [ ] Abstain [ ]
and to vote on such other business as may properly come before the meeting
Dated:_______________________, 1998
________________________________________
Signature of Stockholder(s)
________________________________________
Signature of Stockholder(s)
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by president
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
THANK YOU FOR VOTING.