SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-12
NEXELL THERAPEUTICS INC.
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(Name of Registrant as Specified In Its Charter)
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(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)(1) and 0-11.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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[LETTERHEAD OF NEXELL THERAPEUTICS]
April 27, 2001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of Nexell
Therapeutics Inc., which will be held at The Doubletree Hotel, 90 Pacifica,
Irvine, California on June 21, 2001. The Annual Meeting will begin promptly at
9:00 a.m. Pacific Daylight Time.
The accompanying Proxy Statement, which you are urged to read carefully,
provides important information regarding matters that will be considered and
voted upon at the Annual Meeting. In addition to electing directors of the
Company and ratifying the appointment of the independent auditors, stockholders
will be asked to approve an increase in the amount of shares issuable under the
Company's 1997 Incentive and Non-Incentive Stock Option Plan.
These are very important matters that have significant impact on the Company.
The accompanying Notice and Proxy Statement describe these proposals. We urge
you to read this information carefully and vote your shares promptly. The
directors and officers of the Company hope that as many stockholders as possible
will be present at the meeting. BECAUSE THE VOTE OF EACH STOCKHOLDER IS
IMPORTANT, WE ASK THAT YOU SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED, WHETHER OR NOT YOU NOW PLAN TO ATTEND THIS MEETING. This
will not limit your right to attend the meeting or to change your vote at the
meeting.
We appreciate your cooperation and interest in the Company. To assist us in
preparing for the meeting, please return your proxy card at your earliest
convenience.
On behalf of the Board of Directors, I look forward to seeing you on June 21.
Sincerely,
William A. Albright, Jr.
President and
Chief Executive Officer
NEXELL THERAPEUTICS INC.
9 Parker
Irvine, California 92618
(949) 470-9011
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 21, 2001
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Nexell
Therapeutics Inc. will be held at the Doubletree Hotel, 90 Pacifica Avenue,
Irvine, California on Thursday, June 21, 2001 at 9:00 a.m., Pacific Daylight
Time, to consider and act upon the following proposals:
1. To elect a Board of eight directors;
2. To increase the number of shares of Common Stock issuable under the
Company's 1997 Incentive and Non-Incentive Stock Option Plan from
1,312,500 to 2,262,500;
3. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 2001; and
4. To transact such business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The foregoing items of business are described in the Proxy Statement
accompanying this notice. Only common stockholders of record at the close of
business on April 23, 2001, the Record Date for the Annual Meeting, are entitled
to notice of and to vote at the Annual Meeting.
The Company's Annual Report to Stockholders for the year ended December 31, 2000
containing audited financial statements accompanies this Proxy Statement.
In compliance with Section 219 of the General Corporation Law of the State of
Delaware, a list of the stockholders entitled to vote at the Annual Meeting will
be open for examination by any stockholder for any purpose germane to the Annual
Meeting during ordinary business hours for a period of ten days prior to the
Annual Meeting at the offices of the Company. The list of stockholders will be
available for examination at the site of the Annual Meeting on the meeting date
from 8:30 a.m. until adjournment of the meeting.
By Order of the Board of Directors,
Wayne Tyo
Secretary
Irvine, California
April 27, 2001
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF A BROKER, BANK OR OTHER NOMINEE IS THE RECORD HOLDER OF
YOUR SHARES AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
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HOLDER A PROXY ISSUED IN YOUR NAME.
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YOU CAN VOTE IN ONE OF THREE WAYS:
(1) Use the toll-free telephone number on your
proxy card to vote by phone;
(2) Visit the web site noted on your proxy card to
vote via the Internet; or
(3) Sign, date and return your proxy card in the
enclosed envelope to vote by mail.
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NEXELL THERAPEUTICS INC.
9 Parker
Irvine, California 92618
(949) 470-9011
PROXY STATEMENT
Annual Meeting of Stockholders
To Be Held On June 21, 2001
INTRODUCTION
General
This Proxy Statement is being furnished to stockholders of Nexell Therapeutics
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Company's Board of Directors for use at the
Annual Meeting of Stockholders to be held at the Doubletree Hotel, 90 Pacifica
Avenue, Irvine, California on Thursday, June 21, 2001 at 9:00 a.m., Pacific
Daylight Time, and any and all adjournments or postponements thereof. The cost
of the solicitation will be borne by the Company.
It is expected that this Proxy Statement and the accompanying proxy card will be
first mailed to stockholders on or about May 7, 2001.
Matters to be Considered at the Annual Meeting
At the Annual Meeting, the stockholders will be asked to consider and vote upon
the following proposals:
1. To elect a Board of eight directors;
2. To increase the number of shares of Common Stock issuable under the
Company's 1997 Incentive and Non-Incentive Stock Option Plan from
1,312,500 to 2,262,500;
3. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 2001; and
4. To transact such business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
1
Voting at the Annual Meeting
Stockholders of record of the Company's common stock, $.001 par value (the
"Common Stock") at the close of business on April 23, 2001 (the "Record Date")
are entitled to notice of and to vote at the Annual Meeting, each such holder
being entitled to one vote per share on each matter to be considered at the
Annual Meeting. On the Record Date, there were 20,925,509 shares of Common
Stock issued and outstanding. Holders of the Company's Series A Preferred Stock
and Series B Preferred Stock are not entitled to vote at the Annual Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting (10,462,755 shares outstanding of the 20,925,509 shares
outstanding) is necessary to constitute a quorum at the Annual Meeting.
The election of each of the eight nominees identified in this Proxy Statement
will require the affirmative vote of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote.
Ratification of the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 2001 and approval of the amendment to
the Company's 1997 Incentive and Non-Incentive Stock Option Plan will each
require the affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote.
If the enclosed proxy card is properly executed and returned to the Company
prior to voting at the Annual Meeting, the shares represented thereby will be
voted in accordance with the instruction marked thereon, subject to the
following conditions:
Election of Directors
Shares represented by a proxy marked "WITHHOLD AUTHORITY" to vote for (i) all
eight nominees or (ii) any individual nominee(s) for election as directors and
not otherwise "FOR" the other nominees will not be counted in determining
whether a plurality vote has been received for the election of directors. In
the absence of instructions, shares represented by a proxy will be voted FOR all
of the eight nominees. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned
proxies ("broker non-votes"), those shares will be disregarded and therefore
will have no effect on the outcome of the vote.
Other Proposals
Shares represented by a proxy marked "ABSTAIN" on any other proposal will not be
counted in determining whether the requisite vote has been received for such
proposal. In the absence of instructions, shares represented by a proxy will be
voted FOR all of the proposals set forth in the Notice of Annual Meeting and at
the discretion of the proxy holders on any other matters that may properly come
before the Annual Meeting. In instances of broker non-votes, those shares will
not be included in the vote totals, and therefore will have no effect on the
outcome of the votes on the proposals.
2
Voting by Proxy
Stockholders of record (that is, stockholders who hold their shares in their own
name) can vote any one of three ways:
(1) By Mail: Sign, date and return your proxy card in the enclosed
postage-paid envelope. If you sign and return your proxy card but do
not give voting instructions, the shares represented by that proxy
will be voted as recommended by the Board of Directors.
(2) By Telephone: Call the toll-free number on your proxy card to vote by
phone. You will need to follow the instructions on your proxy card and
the voice prompts.
(3) By Internet: Go to the web site listed on your proxy card to vote
through the Internet. You will need to follow the instructions on your
proxy card and the web site. If you vote through the Internet, you may
incur telephone and Internet access charges.
If you vote by telephone or Internet, your electronic vote authorizes the named
proxies in the same manner as if you signed, dated and returned your proxy card.
If you vote by telephone or the Internet, you should not return your proxy card.
If your shares are held in the name of a bank, broker or other holder of record
(that is "street name"), you will receive instructions from the holder of record
that you must follow in order for your shares to be voted. Telephone and
Internet voting also will be offered to stockholders owning shares through most
banks and brokers.
Changing Your Vote
You may change your vote at any time before the proxy is exercised. If you voted
by mail, you may revoke your proxy at any time before it is voted by executing
and delivering a timely and valid later-dated proxy, by voting by ballot at the
meeting or by giving written notice to the Secretary of the Company. If you
voted by telephone or the Internet you may also change your vote with a timely
and valid later telephone or Internet vote, as the case may be. Attendance at
the meeting will not have the effect of revoking a proxy unless you give proper
written notice of revocation to the Secretary before the proxy is exercised or
you vote by written ballot at the meeting.
3
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table sets forth, as of March 1, 2001, information with respect to
the beneficial ownership of the Common Stock by (i) each person known by the
Company to own beneficially five percent or more of the outstanding Common
Stock, together with their respective addresses, (ii) each director and nominee
for election as a director, (iii) each executive officer named in the Summary
Compensation Table under "Executive Compensation and Related Matters -
Compensation Summary" appearing later in this Proxy Statement and (iv) all
directors and executive officers as a group:
Name Shares Beneficially Owned Percent of Outstanding
---- ------------------------- ----------------------
Richard L. Dunning 250,898 (1) 1.2%
L. William McIntosh 183,750 (2) *
William A. Albright, Jr. 21,563 (2) *
Dennis E. Van Epps, Ph.D. 51,938 (3) *
David Hirsch 24,376 (2) *
Michel L.E. Bergh, Ph.D. 15,625 (2) *
Daniel Levitt, M.D., Ph.D. -0- -0-
Eric A. Rose, M.D. 12,500 *
Victor W. Schmitt 9,375 (2)(4) *
Richard L. Casey 3,125 (2) *
Joseph A. Mollica, Ph.D. 3,125 (2) *
C. Richard Piazza 3,125 (2) *
Baxter Healthcare Corporation 11,978,818 (5) 37.7%
One Baxter Parkway, Deerfield,
Illinois 60015
John Hancock Financial Services, Inc. 3,392,857 (6) 14.6%
P.O. Box 111, Boston,
Massachusetts 02117
Metropolitan Life Insurance Co. 1,543,832 (7) 7.2%
One Madison Avenue, New York,
New York 10010
All directors and executive 605,301 (8) 3.0%
officers as a group (13 persons)
* Less than one percent of the 19,833,957 shares of Common Stock outstanding on
March 1, 2001.
(1) Includes options to purchase 239,000 shares which are exercisable as of
March 1, 2001 or will become exercisable by May 1, 2001, 523 shares owned
by a daughter of Mr. Dunning, and 125 shares owned by each of Mr. Dunning's
spouse, son, and another daughter. Mr. Dunning disclaims beneficial
ownership of the shares held by his spouse, son and daughters.
4
(2) Represents options to purchase shares which are exercisable as of March 1,
2001 or will become exercisable by May 1, 2001.
(3) Includes options to purchase 49,688 shares which are exercisable as of
March 1, 2001 or will become exercisable by May 1, 2001 and 2,250 shares
owned by Dr. Van Epps.
(4) Mr. Schmitt disclaims beneficial ownership of any securities of the Company
beneficially owned by Baxter Healthcare Corporation.
(5) As of December 17, 2000 as reported in Amendment No. 5 to Schedule 13D.
Includes 3,500,000 shares of Common Stock owned by Baxter Healthcare
Corporation, 7,178,818 shares of Common Stock issuable upon conversion of
the 78,967 shares of Series A Preferred Stock owned by Baxter, and
1,300,000 shares of Common Stock issuable upon exercise of a warrant owned
by Baxter.
(6) As of December 31, 2000 as reported in Amendment No. 1 to Schedule 13G.
Includes 3,000,000 shares of Common Stock which may be issued upon
conversion of 33,000 shares of Series B Preferred Stock and 392,857 shares
of Common Stock issuable upon exercise of Class B Warrants. Of the
3,000,000 shares, 2,727,272.75 are owned by John Hancock Life Insurance
Company ("JHLICO"), 181,818.25 shares are owned by JHLICO's direct wholly-
owned subsidiary John Hancock Variable Life Insurance Company ("JHVLICO"),
and 90,909 shares are owned by JHVLICO's direct wholly-owned subsidiary
Investors Partner Life Insurance Company ("Partners"). Of the 392,857
shares of Common Stock issuable upon exercise of Class B Warrants,
357,142.75 are deemed beneficially owned by JHLICO, 23,809.50 shares are
deemed beneficially owned by JHVLICO and 11,904.75 shares are deemed
beneficially owned by Partners.
(7) As of December 31, 2000 as reported in Amendment No. 1 to Schedule 13G.
Includes 1,624 shares of Common Stock owned, 1,363,636 shares of Common
Stock issuable upon conversion of 15,000 shares of Series B Preferred Stock
and 178,572 shares of Common Stock issuable upon exercise of Class B
Warrants.
(8) Includes options to purchase 577,128 shares of Common Stock which are
exercisable as of March 1, 2001 or will become exercisable as of May 1,
2001.
5
PROPOSAL 1
ELECTION OF DIRECTORS
Board of Directors of the Company
The Bylaws of the Company provide that the number of directors shall be not less
than three nor more than fifteen. The Board of Directors has fixed the current
size of the Board at eight. Effective September 29, 2000, L. William McIntosh
resigned as a director. Effective October 10, 2000, Daniel Levitt, M.D., Ph.D.
was elected as a director by the Board of Directors. Effective December 4, 2000,
Donald G. Drapkin resigned from the Board. Effective March 1, 2001, William A.
Albright, Jr. was elected as a director by the Board of Directors. There are no
vacancies on the Board.
At the Annual Meeting, an eight person Board of Directors is to be elected, to
hold office until the next Annual Meeting of Stockholders and until their
successors are duly elected and qualified. Unless otherwise specifically
directed by stockholders executing proxies, it is intended that all proxies in
the accompanying form received in time for the Annual Meeting will be voted FOR
the election of the eight nominees named below, all of whom are current
directors of the Company.
In the event any nominee should become unavailable for election for any
presently unforeseen reason, it is intended that the proxies will be voted FOR
such substitute nominee as may be designated by the present Board of Directors.
The Company, current directors Richard L. Dunning and Eric A. Rose, M.D., now
former directors Donald G. Drapkin, Lindsay A. Rosenwald, M.D. and Lawrence D.
Fink, Paramount Capital Asset Management Inc. and Baxter Healthcare Corporation
("Baxter") are parties to a Voting Agreement dated December 17, 1997 (the
"Voting Agreement"), pursuant to which all parties agreed to vote all of their
Common Stock in favor of one Baxter-nominated director. Victor W. Schmitt has
been elected a director pursuant thereto. In addition, Baxter has agreed to
vote all of its Common Stock in favor of the nominees for director recommended
by the majority of the Company's Board of Directors. The Voting Agreement will
remain in effect as long as Baxter continues to own at least 3% of the Common
Stock. Baxter's obligations will terminate if the "threshold" as described in a
Side Letter Agreement dated November 24, 1999 between the parties is met. See
"Certain Transactions."
Biographical Information
Each nominee's name, age, office with the Company, if any, the year first
elected as a director and certain biographical information are set forth below:
Richard L. Dunning, 55, was elected as Chairman of the Board of Directors
in May 1999 and was Chief Executive Officer of the Company from April 1996 until
March 1, 2001. Prior to joining the Company, Mr. Dunning served as Executive
Vice President and Chief Financial
6
Officer of the DuPont Merck Pharmaceutical Company (now DuPont Pharmaceuticals
Company) from 1991 to 1995. Mr. Dunning also serves as a director of Centaur
Pharmaceuticals, Epoch Biosciences and Endorex Corp.
Eric A. Rose, M.D., 50, was elected a director of the Company in November
1995. Dr. Rose is Surgeon-in-Chief at Columbia Presbyterian Medical Center in
New York, a position he has held since August 1994. Dr. Rose is a past
president of the International Society for Heart and Lung Transplantation.
Victor W. Schmitt, 52, was elected a director of the Company in December
1997 pursuant to the Voting Agreement. Mr. Schmitt has been President, Venture
Management, Baxter Healthcare Corporation since 1994. Prior to this position,
he held the operating position of President, Baxter Biotech Europe. Mr. Schmitt
joined Baxter after a 16-year career with the American Red Cross Blood Services,
where he held positions in marketing and operations. He also serves as a
director of GenStar Therapeutics Corp. and Acambis plc.
C. Richard Piazza, 53, was elected a director of the Company in November
1999. Mr. Piazza has served as President and Chief Executive Officer of MAXIA
Pharmaceuticals since February 2001. Mr. Piazza served as Chairman and CEO of
PharmaPrint Inc., a dietary supplements, functional foods and natural
pharmaceuticals company from 1999 to 2000. Prior to joining PharmaPrint, Mr.
Piazza was CEO of VitaGen Inc., a biotechnology company specializing in
combating liver disease, from 1994 to 1999. Previous management positions
include that of President and CEO of Everest and Jennings International Ltd.,
President and CEO of Marquest Medical Products, President and CEO of Smith and
Nephew Solopak, President of Biolectron, Inc., President and CEO of Radius
Health System Services & Supplies, as well as management roles at Stimetics and
Ohmeda.
Joseph A. Mollica, Ph.D., 60, was elected a director of the Company in
November 1999. Dr. Mollica has been Chairman and CEO of Pharmacopeia, a leader
in the field of drug discovery using small molecule combinatorial chemistry,
since 1994. Prior to joining Pharmacopeia, Dr. Mollica served as President and
CEO of the DuPont Merck Pharmaceutical Co. and Vice President of DuPont
Pharmaceuticals. He joined DuPont Medical Products as Head of Pharmaceutical
and Biotechnology after twenty years as a scientist and executive at Ciba-Geigy.
Dr. Mollica also serves as a director of Pharmacopeia Inc., Neurocrine
Biosciences Inc., Impath Inc. and Genencor International Inc.
Richard L. Casey, 54, was elected a director of the Company in November
1999. Mr. Casey has served since January 2000 as Chairman and CEO of CellGate,
Inc., a drug discovery company. Mr. Casey served as Chairman and CEO of Scios
Inc. (formerly California Biotechnology, Inc.), a biopharmaceutical company,
from 1987 until his retirement in 1998. Prior to joining Scios, Mr. Casey was
Executive Vice President at Alza Corporation and President of the Alza
Pharmaceuticals Division. Previous management positions include that of General
Manager of Syntex Medical Diagnostics, Vice President of Sales at Syntex
Laboratories, and a variety of sales, strategic planning and market analysis
positions at Syntex and Eli Lilly and Company. Mr. Casey also serves as a
director of Guilford Pharmaceuticals, Synsorb Biotech Inc. and Oncolytics
Biotech.
7
Daniel Levitt, M.D., Ph.D., 53, was elected a director of the Company in
October 2000. Dr. Levitt has served as President, R&D of Protein Design Labs,
Inc. since May 2000. He joined that company as Senior Vice President,
Preclinical, Clinical and Regulatory Affairs in 1996. Dr. Levitt has held
senior R&D and scientific positions at Geron Corporation, Sandoz Pharma Ltd.,
Sandoz Pharmaceutical Corporation, Hoffman-LaRoche, Inc. He was also a Senior
Scientist, Consulting Physician and Founding Member of the Guthrie Research
Institute. Prior to that, he was Assistant Professor and Attending Physician in
General Pediatrics, Pediatric Immunology, Oncology and Rheumatology at
University of Chicago Hospitals and Clinics, Wyler Children's Hospital and La
Rabida Children's Hospital.
William A. Albright, Jr., 43, was elected a director and was appointed as
President and Chief Executive Officer of the Company in March 2001 at which time
he relinquished his position as Chief Operating Officer which he had held since
July 2000. He joined the Company as Senior Vice President, Chief Financial
Officer and Secretary in May 1999 and became President and Chief Operating
Officer in July 2000. Prior to joining the Company, Mr. Albright was a
consultant to the healthcare industry. From 1996 to 1998, he was Chief Financial
Officer of LocalMed, Inc., a venture-stage medical device company developing
products for interventional cardiology. From 1994 to 1996, he was Chief
Financial Officer of Connetics Corp., a biopharmaceutical company. He joined
Connetics as the third employee and helped build the organization from the
venture-backed spin-off of Genentech Inc. into a freestanding publicly traded
company. Earlier in his career he held senior positions within the medical
device group of Eli Lilly and Company.
Meetings and Committees
During 2000, there were eight meetings of the Board of Directors. Additionally,
the Board took action by unanimous written consent without a meeting on one
occasion in 2000. During 2000, each director attended at least 75% of the total
number of the meetings of the Board and of the committees of the Board on which
such member serves, except Dr. Rose who attended 62% of the meetings, Messrs.
Schmitt and McIntosh who attended 50% of the meetings, and Mr. Drapkin who
attended 25% of the meetings.
The Compensation Committee, which also acts as the Stock Option Committee,
consists of Mr. Casey and Dr. Mollica and met five times and took action by
unanimous written consent without a meeting on one occasion during 2000. The
Compensation Committee approves grants of options pursuant to the Company's
stock option plans and recommends compensation for executive officers.
The Audit Committee, which consists of Messrs. Piazza and Casey and Dr. Rose,
met on five occasions during 2000. The Audit Committee reviews the audit and
financial procedures of the Company, recommends any changes with respect thereto
to the Board of Directors, and also recommends to the Board the selection of
independent auditors. In March 2000, the Board of Directors adopted an Audit
Committee Charter attached as Appendix A. For further information, see "Report
of the Audit Committee."
8
The Company does not have a standing nominating committee and nominees for the
Board are determined by the entire Board.
Director Compensation
Directors of the Company who are not executive officers (except Mr. Schmitt, the
Baxter representative) are entitled to receive a fee of $10,000 per year for
serving on the Board of Directors, $2,000 per year for serving as a member of
the Compensation or Audit Committees (except the Audit Committee Chairman, who
is entitled to receive a fee of $3,500 per year in lieu of the committee member
fee), and $1,500 for each Board of Directors meeting attended. In addition, on
the date of their initial election to the Board, directors who are not executive
officers are entitled to receive a grant of options under the Company's 1997
Incentive and Non-Incentive Stock Option Plan (the "1997 Plan") to purchase
12,500 shares of Common Stock at a fair market value exercise price vesting at
an annual rate of 25%. Accordingly, Dr. Levitt received a grant of options at an
exercise price of $7.3125 upon his election in October 2000. Effective November
30, 2000, directors who are not executive officers will receive an annual grant
at the Board of Directors meeting following the anniversary of their election,
of options to purchase 4,000 shares of Common Stock at the fair market value on
that date and with vesting to occur in full one year following the grant date.
Accordingly, on December 7, 2000 Messrs. Casey, Piazza and Schmitt and Drs.
Mollica and Rose each received a grant of options to purchase 4,000 shares at an
exercise price of $3.59. For information regarding the Company's arrangements
with Mr. Dunning, see "Employment Agreements."
The Company has entered into Indemnification Agreements with each member of its
Board of Directors indemnifying them to the fullest extent allowed under
applicable law.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE EIGHT NOMINEES NAMED ABOVE
9
EXECUTIVE COMPENSATION AND RELATED MATTERS
Compensation Summary
The following table sets forth a summary of the compensation for each of the
three years ended December 31, 2000 earned by the Company's Chief Executive
Officer, the other four highest compensated executive officers during 2000 who
were serving as such at December 31, 2000, and one additional individual who was
an executive officer during 2000 but who was not serving as such at December 31,
2000.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Other
Annual Securities All Other
Name and Fiscal Comp. Underlying Compensation
Principal Position Year Salary ($) Bonus ($)(1) ($)(2) Options (#)(3) ($)(4)
- ---------------------- -------- ----------- ------------- ---------- ----------------- ---------------
Richard L. Dunning 2000 $200,000 -- $ 6,000 50,000 $ 5,250
Chairman and Chief 1999 $225,000 $25,000 $ 6,000 200,000 (5) $ 3,000
Executive Officer 1998 $250,000 -- $ 6,000 50,000 $ 2,950
(9)
L. William McIntosh 2000 $185,000 $50,000 -- -- $99,650
Former President 1999 $233,000 $68,000 $ 57,900 108,750 (6)(7) $ 4,800
and Chief Operating 1998 $216,000 $11,000 $ 8,400 22,500 $ 2,200
Officer (8)
William A. Albright, 2000 $205,000 -- $ 53,500 85,000 $ 5,250
Jr. 1999 $121,000 $28,700 $ 36,800 86,250 $ 2,900
President and Chief 1998 -- -- -- -- --
Executive Officer
(10)
Dennis E. Van Epps, 2000 $183,000 -- $ 2,300 63,750 $ 3,940
Ph.D. 1999 $165,000 $12,300 $ 3,375 -- $ 3,675
VP, Research and 1998 $151,000 $ 6,200 $ 2,000 56,250 $ 3,790
Development
David Hirsch 2000 $178,000 -- $ 21,600 51,250 $ 2,690
VP, Global Sales 1999 $114,230 $33,000 $101,500 48,750 $ 1,350
and Marketing 1998 -- -- -- -- --
Michel L.E. Bergh, 2000 $183,000 -- $ 38,400 37,500 $ 5,250
Ph.D. 1999 $ 48,000 $37,700 $ 6,400 62,500 $ 1,250
VP, Business 1998 -- -- -- -- --
Development
10
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(1) Bonus amounts are shown for the year in which earned and except as noted
below were paid in the following year. Signing bonuses of $20,000, $25,000
and $34,400 to Mr. Albright, Mr. Hirsch and Dr. Bergh, respectively, and a
special bonus paid in 1999 of $43,000 to Mr. McIntosh were earned and paid
in the same year.
(2) Other Annual Compensation includes $6,000 reimbursement of personal medical
and health care insurance paid to Mr. Dunning in each fiscal year, $2,300,
$2,000, and $2,000 paid to Dr. Van Epps in 2000, 1999, and 1998,
respectively for patent awards and reimbursement of relocation expenses
paid to Mr. McIntosh, Dr. Van Epps, Mr. Albright, Mr. Hirsch and Dr. Bergh.
(3) Number of shares of Common Stock purchasable. See Option Grant Table below
for exercise prices and expiration dates.
(4) Includes Company's matching contribution to the named executive's account
in the Company's 401(k) retirement plan and for Mr. McIntosh $94,400 paid
to him in 2000 related to severance and payments for paid vacation upon
termination of his employment. See "Employment Agreements."
(5) Reflects options to purchase 150,000 shares that were repriced and options
to purchase 50,000 shares that were cancelled in connection with a new
grant of 50,000 shares.
(6) Includes options to purchase 93,750 shares that had previously represented
options, granted in May 1998, to purchase 125,000 shares in Nexell of
California, Inc., the Company's principal operating subsidiary ("NCI") and
which automatically converted to options in the Company upon NCI becoming a
wholly owned subsidiary in May 1999.
(7) Includes options to purchase 15,000 shares under a contract entered into in
1998, but which options were granted in 1999.
(8) Effective July 14, 2000, Mr. McIntosh resigned as an officer of the
Company. See "Employment Agreements."
(9) Effective March 1, 2001, Mr. Dunning resigned as Chief Executive Officer.
(10) Effective March 1, 2001, Mr. Albright was appointed Chief Executive
Officer.
Employment Agreements
Until his resignation as Chief Executive Officer effective March 1, 2001, Mr.
Dunning served as Chairman and Chief Executive Officer of the Company under an
amended and restated employment agreement entered into as of April 15, 1999,
which provided for a base annual salary of $200,000 (effective July 1, 1999,
reduced from $250,000) and an annual cash bonus targeted to be at least 33% of
base compensation assuming satisfactory performance as determined by the Board
of Directors. Mr. Dunning was entitled to four weeks' vacation, participation
in the Company's employee benefit programs and up to six months of severance pay
in the event his employment was terminated without cause or if he terminated his
employment following certain actions by the Company. Upon his resignation as
Chief Executive Officer, Mr. Dunning and the Company agreed that he would
receive six months salary as
11
severance payable in accordance with the Company's payroll practice over the
next six months plus four weeks accrued vacation pay. Also, Mr. Dunning agreed
to forfeit options to purchase 50,000 shares of Common Stock that had been
granted to him by the Company in July 2000. In addition, effective March 1,
2001, Mr. Dunning will receive an annual retainer of $50,000 for serving as
Chairman of the Board of the Company, to be reviewed annually by the Board, and
will be expected to devote approximately one day per week to the Company's
activities.
Mr. McIntosh served until July 14, 2000 as President and Chief Executive Officer
of NCI under an employment agreement which provided for a base annual salary of
$234,000, an annual cash bonus based on performance criteria, targeted to be at
least 25% of Mr. McIntosh's base compensation, and 12 months of severance pay in
the event his employment was terminated without cause. Pursuant to a letter
agreement dated August 10, 2000, Mr. McIntosh received his base salary through
September 30, 2000 and will receive severance payments from October 1, 2000
through September 30, 2001 equal to $253,094. He is also entitled to a one-time
bonus of $50,000 to be paid no later than February 27, 2001. Under the
agreement Mr. McIntosh will provide consulting services to NCI and the Company
until September 14, 2001 for a minimum payment of $30,000.
The following executives do not have employment agreements with the Company.
Mr. Albright serves as President and Chief Executive Officer for a base annual
salary of $275,000 (increased from $230,000 effective March 1, 2001). Dr. Van
Epps serves as Vice President, Research and Development for a base annual salary
of $185,400. Mr. Hirsch serves as Vice President, Global Sales and Marketing
for a base annual salary of $190,000. Dr. Bergh serves as Vice President,
Business Development for a base annual salary of $183,600.
12
Stock Options
The following table sets forth information with respect to grants of options
("Options") to purchase Common Stock under the Company's stock option plans to
the executive officers named in the Summary Compensation Table during the fiscal
year ended December 31, 2000.
Option Grants in the Fiscal Year Ended December 31, 2000
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (4)
---------------------------------------------------------------------------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (#)(1) Fiscal Year ($/Sh)(2) Date (3) 5% ($) 10% ($)
---- ------------- ---------- -------- -------- ------ -------
Richard L. 50,000 5.2% $14.875 07/03/10 $467,740 $1,185,346
Dunning
L. William -- -- -- -- -- --
McIntosh
William A. 85,000 8.8% $14.875 07/03/10 $881,694 $2,152,881
Albright, Jr.
Dennis E. Van 33,750 3.5% $14.875 07/03/10 $350,084 $ 854,820
Epps, Ph.D. 30,000 3.1% $16.000 02/18/10 $607,287 $1,251,323
David Hirsch 22,000 2.3% $ 7.313 10/10/10 $ 79,941 $ 222,584
29,250 3.0% $14.875 07/03/10 $303,406 $ 740,844
Michel L.E. 37,500 3.9% $14.875 07/03/10 $388,982 $ 949,800
Bergh, Ph.D.
- -----------------
(1) The Options granted generally shall terminate ten years from the date of
grant unless (i) termination of employment was by reason of death, in which
case the Options shall be exercisable for one year after the date of
termination of employment or (ii) such termination was for cause, in which
case the Options shall terminate on the date of termination of employment.
The Options are non-transferable.
(2) All Options were granted at or above market value on the date prior to
grant. The exercise price may be paid by cash, by delivery of already
owned shares or by offset of the underlying shares, subject to certain
conditions.
(3) Except as noted below, the Options vest and become exercisable as to 60% of
the shares on the first anniversary of the grant date, and an additional
20% of the Options vest on
13
each of the second and third anniversaries of the grant date if the
Optionee has remained employed by the Company until such date. The Options
to Dr. Van Epps for 30,000 shares and the Options to Mr. Hirsch for 22,000
shares vest and become exercisable as to 25% of the shares on the first
anniversary of the grant date, and an additional 25% of the Options vest on
each of the second, third and fourth anniversaries of the grant date if the
Optionee has remained employed by the Company until such date. In certain
circumstances the Options for each of the individuals designated in the
table will vest upon a change in control of the Company.
(4) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock, overall stock conditions, as well as the
optionholders' continued employment through the vesting period. The
amounts reflected in this table may not necessarily be achieved.
14
The following table set forth certain information concerning Options exercised
during 2000, and the number of unexercised Options as of December 31, 2000 held
by the individuals named in the Summary Compensation Table.
Aggregated Options Exercises in Fiscal 2000 and Fiscal Year End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 2000 (#) December 31, 2000 ($)(1)
--------------------- ------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Richard L. 11,000 23,320 205,668 83,332 -- --
Dunning
L. William -- -- 183,750 -- $45,408 --
McIntosh
William A. -- -- 21,563 149,687 -- --
Albright,
Jr.
Dennis E. -- -- 28,126 91,874 -- --
Van Epps,
Ph.D.
David -- -- 12,188 87,812 -- --
Hirsch
Michel L.E. -- -- 15,625 84,375 -- --
Bergh,
Ph.D.
- -------------
(1) Based upon the $3.0312 closing sale price of the Common Stock on The Nasdaq
Stock Market on December 29, 2000.
15
Stock Option Plans
Beginning in July 1990, the Company has maintained the following stock option
plans: 1990 Incentive and Non-Incentive Stock Option Plan (the "1990 Plan"),
1997 Incentive and Non-Incentive Stock Option Plan (the "1997 Plan"), and 1998
Non-Incentive Stock Option Plan (the "1998 Plan"), (collectively the "Stock
Option Plans") and 1995 Directors' Stock Option Plan (the "1995 Directors'
Plan").
The Stock Option Plans are administered by the Compensation Committee of the
Board of Directors, which acts as the Stock Option Committee (the "Option
Committee"). The Option Committee is currently comprised of Richard L. Casey and
Joseph A. Mollica, Ph.D.
The purpose of the Stock Option Plans is to further the growth and development
of the Company by encouraging selected employees, directors and other persons
who contribute and are expected to contribute materially to the Company's
success to obtain a proprietary interest in the Company through the ownership of
its Common Stock, thereby providing such persons with an added incentive to
promote the best interests of the Company and affording the Company a means of
attracting persons of outstanding ability to its service. Approximately 100
employees of the Company and an indeterminate number of consultants and others
are eligible to participate in the Stock Option Plans.
1990 Plan
The 1990 Plan was adopted in July 1990 and no further options could be granted
after July 2000. Under the 1990 Plan, 600,000 shares of Common Stock were
reserved for issuance upon exercise of either incentive or non-incentive
options, which were granted from time to time by the Option Committee to
employees, directors, consultants, agents, independent contractors, and others
who contributed to the Company's success. The terms of the options were up to
ten years and were exercisable as determined by the Option Committee, provided
that the option generally did not become exercisable before six months from the
date of grant. The grant prices had to be no less than 50% and 100% of the fair
market value for non-incentive and incentive options, respectively, and were
generally granted at the market close price on the day prior to the grant. The
options accelerated upon a change in control as defined in the 1990 Plan.
Generally, options vested at a rate of 25% per annum on the anniversary date of
grant. The maximum number of shares that were subject to options granted under
the 1990 Plan during any calendar year to any executive officer was 200,000.
1997 Plan
The 1997 Plan was adopted in February 1997 and will expire in February 2007,
unless earlier terminated by the Board of Directors. Under the 1997 Plan, an
aggregate of 1,312,500 shares are reserved for issuance upon exercise of either
incentive or non-incentive options, which may be granted from time to time by
the Option Committee to employees, directors, consultants, agents, independent
contractors, and others who contribute to the Company's success. The terms of
the options may be up to ten years and are exercisable as determined by the
Option Committee,
16
provided that the option generally does not become exercisable before six months
from the date of grant. The grant prices must be no less than 50% and 100% of
the fair market value for non-incentive and incentive options, respectively, and
are generally granted at the market close price on the day prior to the grant.
The options accelerate upon a change in control as defined in the 1997 Plan. At
March 1, 2001, there were 116,063 options available for grant under the 1997
Plan. Generally, options vest 25 % per annum on the anniversary date of grant.
The maximum number of shares that may be subject to options granted under the
1997 Plan during any calendar year to any executive officer is 200,000. The
Board of Directors is recommending that the stockholders approve an amendment to
the 1997 Plan to increase the number of shares reserved thereunder from
1,312,500 to 2,262,500. For a description of this proposal and for further
information regarding the 1997 Plan, see Proposal 2.
1998 Plan
The 1998 Plan was adopted in January 1998 and will expire in December 2007,
unless earlier terminated by the Board of Directors. Under the terms of the 1998
Plan, up to an aggregate of (i) 250,000 shares of NCI common stock and (ii)
750,000 shares of Common Stock of the Company were reserved for issuance upon
the exercise of non-incentive options which may be granted from time to time by
the Option Committee of the Board of Directors to employees, directors,
consultants, agents, independent contractors and others who contribute to the
Company's success. The terms of the options may be up to ten years and are
exercisable as determined by the Option Committee. Each grant originally
provided for an exercise price of $5.00 per share of NCI common stock
(approximately $6.68 per share of Common Stock of the Company in the event such
options became exercisable for the Company's Common Stock). As a result of NCI
becoming a wholly owned subsidiary of the Company in May 1999, all outstanding
options converted automatically to options to purchase Common Stock of the
Company. The options accelerate upon a change in control as defined in the 1998
Plan. At March 1, 2001, there were 79,140 options available for grant under the
1998 Plan. Generally, options vest at 25% per annum on the anniversary date of
the grant.
1995 Director Plan
In August 1995, the Company adopted the 1995 Director Plan authorizing the
issuance of five-year options to purchase an aggregate of 230,000 shares at an
exercise price equal to the fair market value of Common Stock at date of grant.
All of the options were granted to Directors under the 1995 Director Plan and no
further options are available for grant. As of March 1, 2001, all options had
been exercised.
401(k) Plan
Effective as of January 1, 1998, the Company adopted its 401(k) Plan (the
"Plan"), which includes a cash-or-deferred arrangement under Section 401(k) of
the Internal Revenue Code of 1986, as amended. The Plan was established to
provide retirement and other benefits to employees of the Company. Employees
qualify to participate in the Plan on the first of the month following their
date of hire. Participants may designate up to 15% of their compensation
17
to be contributed to the Plan on a pre-tax basis ("Employee Elective
Contributions"). Participants will be 100 % vested in their Employee Elective
Contributions (including earnings) at all times.
The Company matches 50% of the first 6% of an employee's contributions to the
Plan. Participants will generally vest in the Company's contributions (including
earnings) at the rate of 33.3% on the first anniversary from date of
participation, 66.6% on the second anniversary from date of participation and
100% on the third anniversary from date of participation.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2000, the members of the Compensation
Committee, which also acts as the Stock Option Committee, have been Richard L.
Casey and Joseph A. Mollica, Ph.D., neither of whom is an officer or employee or
former officer of the Company or any of its subsidiaries. Mr. Casey and Dr.
Mollica were granted stock options in 2000. See "Director Compensation." No
member of the Compensation Committee has any interlocking relationship with any
other corporation that requires disclosure under this heading.
Compensation Committee Report
The Compensation Committee is responsible for setting the Company's policy with
respect to the compensation of the Company's senior executive officers,
including the Chief Executive Officer, and administering the Company's stock
option plans. The Company's policy is to establish a compensation program that
will attract, retain and motivate qualified members of senior management in a
manner that is competitive with other companies in the biotechnology industry.
The key elements in this policy are salary, stock options, and availability of a
cash bonus. As the Company has only recently emerged from the development stage,
revenues and profits have been largely inapplicable as factors in determining
compensation of the Chief Executive Officer and other executives of the Company.
Rather, the Compensation Committee in the past has looked to qualitative
factors, including the officers' efforts to build the organization, to expand
the Company's potential product line (through acquiring new technologies or
otherwise), to expand the range of applications therefor, and to intensify the
Company's research and development efforts for its potential products.
As noted above, the key elements of an executive's compensation consist of base
salary, a cash bonus and stock options. These items are discussed in more detail
in the following sections of this Report.
(a) Base Salary
The Company compensates its executive officers partly through salaries. As
described above, based on the factors described therein, the Compensation
Committee reviews certain officers' salaries, including Mr. Dunning's (the Chief
Executive Officer during the fiscal year ended December 31, 2000). In connection
with the Company entering into an amended and restated employment agreement with
Mr. Dunning in April 1999, his base salary was reduced from
18
$250,000 to $200,000 effective July 1, 1999, he agreed to forego a bonus in 1999
relating to 1998, and his options were repriced.
(b) Bonus
The Company's senior executives and employees are eligible to receive a cash
bonus. Subject to negotiated and targeted contractual bonus provisions contained
in certain executives' employment agreements, the amount of bonuses and their
distribution is discretionary, and the general practice is that such bonuses are
recommended by senior management and reviewed by the Compensation Committee and
the Board of Directors. For fiscal 2000, one of the executive officers named in
the Summary Compensation Table (Mr. McIntosh) received a bonus under an
agreement entered into in connection with his termination of employment. See
"Employment Agreements." Mr. Dunning, the Company's Chief Executive Officer
during the fiscal year ended December 31, 2000, did not receive a bonus.
(c) Stock Based Compensation
Under the Company's stock option plans which have been approved by the
stockholders, stock based compensation in the form of stock options may be
granted to directors, officers, employees, and consultants of the Company. The
purpose of equity participation is to further align the interests between
executive officers and the stockholders in the Company's growth in real value
over the long term.
Stock options, which are generally exercisable for ten years from the date of
grant, generally have an exercise price equal to (or in some cases in excess of)
the closing market price (NASDAQ/National Market) of the Company's Common Stock
on the date of grant and generally vest over three or four years from the grant
date. This approach is designed to provide an incentive to create stockholder
value over the longer term, since the full benefit of the stock option
compensation package generally cannot be realized unless stock appreciation
occurs over several years.
The Compensation/Stock Option Committee determines the number of options to be
granted based principally upon the recommendation of senior management, whose
recommendation in turn is based on their subjective analysis of individual
performance, responsibility, the executive's other compensation (including prior
grants of options, if any) and the executive's retention value to the Company.
No specific weighting is assigned to these factors.
In 2000, Mr. Dunning was granted options to purchase 50,000 shares of Common
Stock vesting over two years, which options Mr. Dunning relinquished upon his
resignation as Chief Executive Officer effective March 1, 2001. Certain other
executive officers, including four other executive officers named in the Summary
Compensation Table, were granted options in 2000. See "Option Grants in the
Fiscal Year Ended December 31, 2000."
In 1993, Congress enacted the Omnibus Reconciliation Act of 1993 (OBRA) which,
among other things, establishes certain requirements in order for compensation
exceeding $1,000,000 earned by certain senior executives to be deductible.
Although the Company's historical levels
19
of executive compensation have been substantially less than $1,000,000 per
employee annually, the Board of Directors has established certain restrictions
on the granting of options under the Company's stock option plans to assist in
qualifying such compensation for an exemption under OBRA, except that non-
qualified options granted with an exercise price less that the fair market value
of the Common Stock on the date of grant are permitted under such plans and will
not qualify for such exemption. Also, in light of the composition of the
Compensation/Stock Option Committee prior to November 1999, options granted
prior thereto will not qualify for such exemption and there can be no assurance
that such exemption will be available in the future. The Board of Directors does
not believe that other components of the Company's compensation will be likely
to exceed $1,000,000 for any executive officer in the foreseeable future and
therefore concluded that no further action with respect to qualifying such
compensation for deductibility was necessary at this time. The Board will
continue to evaluate the advisability of qualifying the deductibility of such
compensation in the future.
The Compensation Committee
Richard L. Casey
Joseph Mollica, Ph.D.
The above report shall not be deemed incorporated by reference into any filing
under the Securities Act of 1933 ("Securities Act") or under the Securities
Exchange Act of 1934 ("Exchange Act"), by any general statement incorporating by
reference this Proxy Statement, except to the extent the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
Report of the Audit Committee
The Board of Directors has appointed an Audit Committee composed of three
directors. The Board of Directors believes that each member is "independent" of
the Company and management, as that term is defined in the NASDAQ listing
standards. The Audit Committee operates under a written charter adopted by the
Board of Directors, which is attached hereto as Appendix A.
Management is responsible for the Company's internal controls and the financial
reporting process. The Company's independent accountants, KPMG LLP, are
responsible for performing an independent audit of the Company's financial
statements in accordance with auditing standards generally accepted in the
United States of America and the issuance of a report thereon. The Audit
Committee's responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has met and held discussions with
management and the independent accountants. Management represented to the Audit
Committee that the Company's financial statements were prepared in accordance
with accounting principles generally accepted in the United States of America,
and the Audit Committee has reviewed and discussed the audited financial
statements with management and the independent accountants. The Audit
20
Committee discussed with the independent accountants matters required to be
discussed by Statement on Auditing Standards No. 61, which includes, among other
things:
a) methods used to account for significant unusual transactions;
b) the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or consensus;
c) the process used by management in formulating particularly sensitive
accounting estimates and the basis for the auditors' conclusions regarding the
reasonableness of these estimates; and
d) disagreements with management over the application of accounting
principles, the basis for management's accounting estimates, and the disclosures
in the financial statements.
The independent accountants also provided to the Audit Committee the written
disclosures required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and the Audit Committee
discussed with the independent accountants that firm's independence from the
Company and its management.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Audit Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent accountants. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal control and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Company's financial statements has been carried out in
accordance with generally accepted auditing standards, that the financial
statements are presented in accordance with generally accepted accounting
principles or that the Company's auditors are in fact "independent."
Based on the Audit Committee's discussion with management and the independent
accountants and the Audit Committee's review of the representation of management
regarding the audited financial statements and of the report of the independent
accountants to the Audit Committee, and subject to the limitations on the role
and responsibilities of the Audit Committee referred to above and in the
Charter, the Audit Committee recommended to the Board of Directors, and the
Board has approved, that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, for filing with the Securities and Exchange Commission.
21
The Audit Committee
Richard L. Casey
C. Richard Piazza
Eric A. Rose, M.D.
Audit Fees
The Company has been billed a total of $100,000 by KPMG LLP, the Company's
independent auditors, for professional services rendered for the audit of the
Company's annual financial statements for the fiscal year ended December 31,
2000 and the limited reviews of interim financial statements included in the
Company's Forms 10-Q filed during the last fiscal year.
Financial Information Systems Design and Implementation Fees
The Company has not been billed any amounts by KPMG LLP for professional
services rendered in connection with financial information systems design and
implementation during the fiscal year ended December 31, 2000.
All Other Fees
The Company has been billed a total of $125,000 for all other services rendered
by KPMG LLP that are not set forth above. These included fees for services
related to proxy preparation, miscellaneous SEC matters and tax compliance and
consultation.
The Audit Committee of the Board of Directors of the Company has considered
whether the provision of financial information systems design and implementation
and other non-audit services is compatible with maintaining KPMG LLP's
independence.
22
STOCK PRICE PERFORMANCE COMPARISON
The Stock Price Performance Graph below compares cumulative total return of the
Company's Common Stock with the cumulative total return of (i) the Index for the
NASDAQ Stock Market (U.S. Companies) (the "NASDAQ Index"); and (ii) JP Morgan
H & Q Biotechnology Index (the "Biotechnology Index"). The Graph assumes $100
was invested on December 31, 1995, in (i) the Company's Common Stock, (ii) the
stocks comprising the NASDAQ Index, and (iii) the stocks comprising the
Biotechnology Index, and the reinvestment of dividends. As disclosed in last
year's Proxy Statement the Company no longer uses the NASDAQ Pharmaceutical
Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG NEXELL THERAPEUTICS INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE JP MORGAN H & Q BIOTECHNOLOGY INDEX
[GRAPHIC]
Cumulative Total Return
-------------------------------------------------
12/95 12/96 12/97 12/98 12/99 12/00
NEXELL THERAPEUTICS, INC. 100.00 300.00 172.27 97.23 111.11 67.36
NASDAQ STOCK MARKET (U.S.) 100.00 123.04 150.69 212.51 394.92 237.62
JP MORGAN H & Q BIOTECHNOLOGY 100.00 92.27 93.40 142.22 304.01 326.83
*$100 INVESTED ON 12/31/95 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
The graph above shall not be deemed incorporated by reference into any filing
under the Securities Act or under the Exchange Act, by any general statement
incorporating by reference this Proxy Statement, except to the extent the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
23
CERTAIN TRANSACTIONS
The Company has entered into employment agreements with certain of its executive
officers. See "Employment Agreements." The Company has issued stock options to
its directors and officers and entered into Indemnification Agreements with its
directors. See "Director Compensation" and "Stock Options."
Relationship with Baxter
Overview
The Company's significant operating activities began with its December 1997
acquisition of the business of the Immunotherapy Division (the "Division") of
the Biotech Business Group of Baxter Healthcare Corporation ("Baxter"). In
connection therewith, the Company entered into several agreements with Baxter by
which Baxter agreed to perform certain activities related to the Division. In
1999, the parties entered into additional agreements to restructure Baxter's
ownership interest in the Company and NCI and to modify their business
arrangements. Pursuant to such agreements, during the year ended December 31,
2000, NCI paid Baxter the aggregate amount of $8,240,342.
December 1997 - Acquisition of the Immunotherapy Division
In December 1997, the Company acquired substantially all of the assets of the
Division. In exchange for these assets, Baxter received (i) 2,750,000 shares of
Common Stock, (ii) 66,304 shares of the Company's Series A Convertible Preferred
Stock, convertible into Common Stock at a conversion price of $22.00 per share,
(iii) 19.5% of the outstanding common stock of NCI, (iv) a warrant to purchase
an additional 6% of the then outstanding common stock of NCI for an aggregate
$6,000,000, and (v) the right to receive payments up to $21,000,000 from NCI
upon the occurrence of certain milestone events. The $21,000,000 represents the
maximum potential amount that could be paid by the Company when, and if, certain
FDA and European regulatory approvals are obtained. As the amount of the
contingent consideration, if any, was not determinable nor was the achievement
of the milestones considered probable at the date of the acquisition, it was
excluded from the determination of the cost of the acquisition. Depending on the
progress in certain of the Company's therapeutic programs, a payment of up to
$2,000,000 could be required for milestones achieved in 2001. In addition,
Baxter purchased $30,000,000 principal amount of NCI's 6 1/2% convertible
subordinated debentures. Many of these terms have been renegotiated as set forth
below.
Marketing, Sales and Distribution Agreement ("Distribution Agreement"). NCI
- ----------------------------------------------------------------------
appointed Baxter as its exclusive worldwide marketing, sales and distribution
entity for NCI's Isolex(R) and Maxsep(R) products and reagent kits, with the
right of first offer with respect to acquiring such rights for NCI's future
products. NCI agreed to supply to Baxter products and kits at a discount to
NCI's suggested retail price. The Distribution Agreement was, by its terms, to
expire December 17, 2008. However, as described below, as of November 30, 1999,
the parties terminated the agreement.
24
Services Agreement. Baxter agreed to provide the following services as
- ------------------
necessary to meet NCI's requirements: access to Baxter's Information Management
Center; quality and compliance training; access to the Baxter Institute for
Training and Development; and access to specific accounts through Baxter's
General Ledger and Fixed Assets Systems. NCI agreed to pay only for those
services requested. In addition, Baxter agreed to manufacture, warehouse and
manage inventory for certain clinical codes under protocols in accordance with
the terms of the Hardware and Disposables Supply Agreement and the Hardware and
Disposables Manufacturing Agreement and, at its option, to manufacture certain
prototype products for the research market at a cost to NCI of time and
materials plus 20%. Baxter's obligation to provide the services was extended
until June 30, 1999, at which time (as described below) the Services Agreement
was terminated.
Hardware and Disposables Manufacturing Agreement. Baxter agreed to manufacture
- ------------------------------------------------
on a non-exclusive basis for NCI certain Isolex(R) and Maxsep(R) products and
components and to complete assembly of Isolex(R) and Maxsep(R) instruments and
disposable sets. NCI agreed to pay Baxter's Fully Loaded Cost for the products
and components for the first three years, and Baxter's Fully Loaded Cost plus
15% for the remaining years. Baxter's "Fully Loaded Cost" means the cost to
Baxter of manufacturing the items, including any royalties payable by Baxter in
connection with such manufacturing. The Agreement expires on December 17, 2002.
Antibody Manufacturing and Storage Agreement. Baxter agreed to manufacture on a
- --------------------------------------------
non-exclusive basis for NCI certain antibodies, reagents and reagent kits used
in connection with the Isolex(R) and Maxsep(R) products. NCI agreed to pay
Baxter's Fully Loaded Cost for the antibodies, reagents and reagent kits for the
first three years, and Baxter's Fully Loaded Cost plus 15% for the remaining
years. The Agreement expires on December 17, 2002.
Hardware and Disposables Supply Agreement. Baxter agreed to supply to NCI
- -----------------------------------------
certain of Baxter's products and components in conjunction with the manufacture,
use and sale of Isolex(R) and Maxsep(R) products. Baxter granted to NCI the
exclusive worldwide royalty-free right to distribute such products and
components in connection with ex vivo cell processing, subject to certain
exceptions. NCI agreed to pay Baxter's Fully Loaded Cost for the products and
components for the first three years, Baxter's Fully Loaded Cost plus 15% for
the next two years and Baxter's Fully Loaded Cost plus 30% for the remaining
years. The Agreement expires on December 17, 2008.
License Agreements. Pursuant to four separate sublicense agreements, Baxter
- ------------------
sublicensed to NCI its rights under the following licenses: license from Baxter
and Becton, Dickinson & Company to certain CD34+ cell population and related
antibody and method patents (the "First License"); license from Becton,
Dickinson & Company ("Becton Dickinson") to certain B cell antibodies; license
from Chiron Therapeutics to certain breast cancer antibodies; and license from
Professor Bernd Dorken to certain B cell antibodies. In addition, pursuant to a
royalty assignment and agreement, Baxter assigned to NCI its rights to receive
royalties under three sublicenses Baxter had previously granted under the First
License.
25
Non-Competition and Confidentiality Agreement. Each party agreed not to,
- ---------------------------------------------
directly or indirectly, engage in, render advisory services to an entity that
engages in, or be a joint venturer, partner, licensor or shareholder of more
than 2% of any entity that engages in, the marketing, sale or distribution of
any product that directly competes with certain products of the other. In the
case of Baxter's products, such protected products are for use in on-line
separation of human blood into its constituents. In the case of the Company's
and NCI's products, such protected products are for use in ex vivo cell
selection or genetic alteration and/or expansion in combination with such
selection. Baxter's non-competition obligations expire on the later of December
17, 2004, one year after the date on which Baxter does not own 10% of NCI's
common stock nor has a seat on NCI's board of directors, or the termination of
the Distribution Agreement. The Company's obligations expire on the later of
December 17, 2004, or one year after the date on which the Company does not have
voting control of NCI nor has a seat on NCI's board of directors. NCI's
obligations expire on the later of December 17, 2010, or the termination of the
Hardware and Disposables Supply Agreement.
The Company and Baxter are also parties to a Registration Rights Agreement dated
December 17, 1997 whereby the Company has granted certain demand and piggyback
rights to Baxter.
The Company, certain current and former directors of the Company, certain other
parties and Baxter are also parties to a Voting Agreement. For a description of
the Voting Agreement see "Proposal 1-Election of Directors."
January 1999 through June 1999 - Transfers of Ownership and Assets
In early 1999, the Company and Baxter agreed that it would be in the best
interests of both parties to (i) restructure Baxter's ownership interests in the
Company and NCI, and (ii) modify certain business arrangements among the
Company, NCI and Baxter. In January 1999, the Company and Baxter agreed that the
Company would purchase Baxter's interest in NCI (other than Baxter's right to
milestone payments), resulting in the Company owning 100% of NCI. In exchange
for the common stock, warrant and convertible debentures of NCI then held by
Baxter, Baxter received (i) 750,000 shares of Common Stock, (ii) a warrant to
purchase an additional 1,300,000 shares of Common Stock at an exercise price of
$4.60 per share, (iii) a change in the conversion price of the 70,282 shares of
Series A Convertible Preferred Stock then held by Baxter (an increase from
66,304 shares resulting from dividends payable in kind) from $22.00 to $11.00
per share, and (iv) approximately $33,000,000 principal amount of the Company's
6 1/2% convertible subordinated debentures (replacing the $30,000,000 principal
amount of NCI's 6 1/2% convertible subordinated debentures, plus accrued
interest).
Following the closing on May 28, 1999 (which occurred after stockholder approval
of the transaction at the Company's May 25, 1999 annual meeting of
stockholders), NCI became a wholly owned subsidiary of the Company.
In June 1999, the Company and Baxter entered into a series of agreements dated
June 30, 1999 pursuant to which, among other things, Baxter transferred the
sales, marketing and distribution responsibilities for Isolex(R) and the
Company's other cell therapy products to the Company. Pursuant to an asset
transfer agreement, the Company agreed to purchase from Baxter the
26
finished goods inventory, copies of customer lists and accounting books and
records, hardware and related assets leased or owned, and agreements with
customers and service contracts, all relating to the products previously
marketed and distributed by Baxter under the Distribution Agreement. In
addition, certain Baxter personnel transferred to the Company and became part of
the Company's worldwide sales force. The purchase price for the transferred
assets was equal to the price Baxter as a distributor had originally paid to NCI
for the finished goods inventory plus the book value of all other transferred
assets. The closing for the transfer of assets in the United States and Canada
occurred on June 30, 1999 and in the rest of the world occurred on November 30,
1999. For the year ended December 31, 1999, the Company's cost of repurchasing
the inventory in the United States was approximately $1,000,000 and in the rest
of the world was approximately $2,000,000. Additionally, the Company purchased
approximately $1,200,000 in devices classified as fixed assets. For the year
ended December 31, 2000, there were no repurchases of inventory or devices.
In connection with the asset transfer, the Company and Baxter also entered into
a royalty agreement pursuant to which Baxter will receive a royalty of 5% on the
Company's net sales of Isolex(R) and related cell therapy products from January
1, 2001 until December 17, 2008. (Baxter was also entitled to a royalty of 5% on
the Company's net sales of the foregoing products in excess of $50,000,000 in
the year 2000, which did not occur). In addition, Baxter extended a $20,000,000
line of credit to the Company pursuant to a credit agreement, which agreement
terminated by its terms without being drawn on, upon the closing of the November
1999 financing described below.
As of June 30, 1999 and November 30, 1999, respectively, the Services Agreement
and Distribution Agreement were terminated. The Company now has direct control
of sales of its Isolex(R) and cell therapy products through its field sales
group in the United States and its European headquarters in Belgium. For regions
outside the United States, Canada and Western Europe, NCI and its European
subsidiary are entering into arrangements with third party distributors for
distribution of the Isolex(R) and cell therapy products. The Company is entering
into distribution agreements with distributors unrelated to Baxter in portions
of Northern and Southern Europe and East Asia. In addition, NCI's European
subsidiary has executed an agreement with a Baxter subsidiary for distribution
in Eastern Europe, portions of North Africa and the Middle East. NCI and its
European subsidiary have also entered into several interim services agreements
with Baxter pursuant to which Baxter will continue to provide services in Europe
and certain other regions relating to warehouse and shipping, information
systems, general infrastructure and administrative support, quality assurance
and regulatory affairs.
Baxter has also agreed to continue to provide worldwide services relating to the
installation, repair and maintenance of NCI's cell therapy products pursuant to
the terms of several instrument services agreements dated June 30, 1999 and
November 30, 1999 covering various regions of the world where such products are
sold. Pursuant to the agreements, NCI (or its European affiliate, Nexell
International sprl) will provide training to Baxter personnel, and such
personnel will provide the services as requested by NCI or its customers. NCI
will pay for the services an amount equal to Baxter's Fully Loaded Cost, plus
15% in the case of the United States, Canada and Europe, and plus 20% in the
rest of the world. The instrument services agreements expire upon termination
of the Manufacturing Agreement.
27
Notwithstanding the termination of the Distribution Agreement, the parties have
agreed that Baxter's obligations with respect to the delivery of Isolex(R) and
other cell therapy products under the Manufacturing Agreement, Antibody
Agreement and Supply Agreement shall remain in full force and effect.
The assets purchased from Baxter in conjunction with the termination of the
supply and manufacturing agreements were accounted for as an asset purchase for
cash. The types of items purchased include saleable inventory, Isolex(R) devices
that are located in customer sites both in the United States and in Europe and
minor amounts of promotional materials.
November 1999 - Private Placement Financing
On November 24, 1999, the Company closed a private placement of its securities
to certain institutional investors pursuant to the terms of a securities
agreement (the "Securities Agreement"). The private placement consisted of the
issuance of (i) 63,000 shares of the Company's newly designated Series B
Cumulative Convertible Preferred Stock ("Series B Preferred Stock"), convertible
at the option of the holder at any time until November 24, 2006 (at which time
the conversion is automatic) into shares of Common Stock at $11.00 per share,
subject to anti-dilution adjustment in certain circumstances; (ii) one right per
share of Series B Preferred Stock to put such share to Baxter International Inc.
("Baxter International"), an affiliate of Baxter, from November 24, 2002 until
November 24, 2004 unless earlier terminated (the "Put Rights"); (iii) warrants
to purchase up to 750,000 shares of Common Stock at a purchase price of $12.00
per share, subject to anti-dilution adjustment in certain circumstances,
exercisable for five years; and (iv) a class of performance warrants to purchase
shares of Common Stock at a purchase price of $.04 per share, subject to anti-
dilution adjustment in certain circumstances, exercisable after five years. The
number of performance warrants that may be exercised adjust based upon the
closing price of the Common Stock at the date of exercise, ranging from zero (if
the closing price exceeds $20.00 per share) to 1,500,000 shares (if the closing
price is equal to or less than $12.00 per share). Net proceeds to the Company
from the private placement were approximately $60,400,000. The Company used a
portion of the proceeds in November 1999 to retire approximately $33,900,000 of
the Company's convertible debentures held by Baxter, and intends to use the
remainder of the proceeds for general corporate purposes.
On November 24, 1999, the Company and Baxter International entered into an
agreement (the "Side Letter Agreement") to provide that the conversion price for
the Series B Preferred Stock purchased by Baxter International in the event the
Put Rights are exercised (the "Put Series B Preferred Stock") would be adjusted
on November 24, 2004 (or earlier, if 100% of the Series B Preferred Stock is put
to Baxter International) but only in the event that an amount in excess of
$15,000,000 is purchased by Baxter International, as follows: (i) for the Put
Series B Preferred Stock in an amount up to $53,000,000 (computed on the basis
of the liquidation preference for such stock) (the "Threshold"), the conversion
price would be adjusted to equal the closing price of the Common Stock on the
respective date or dates such Series B Preferred Stock was purchased by Baxter
International (including purchases below the $15,000,000 amount), less a 5%
discount (subject to a floor price equal to the closing price of the Common
Stock on November 24, 1999, unless shareholder approval is obtained if required
by the rules of the
28
Nasdaq Stock Market); (ii) for the Put Series B Preferred Stock in an amount in
excess of the Threshold, then the conversion price would be adjusted to equal
the closing price of the Common Stock on November 24, 1999. The dollar amount of
the Put Series B Preferred Stock would be deemed to accrue interest (payable in
kind in shares of Series B Preferred Stock) from the respective date or dates
the Series B Preferred Stock is put to Baxter International to the date the
adjusted conversion price is determined, at a rate equal to the applicable
three-year U.S. Treasury Note rate at the date of each such purchase, plus 100
basis points. In the event that the foregoing conversion adjustments would not
be permissible under Delaware law, the Company has agreed to take such action as
is appropriate to exchange the Put Series B Preferred Stock for an equal number
of shares of a new series of preferred stock of the Company, having the
identical terms, conditions, preferences and rights of the Series B Preferred
Stock, except that it would bear the conversion price adjustment described
above.
The Company and Baxter International also entered into a Put Agreement dated
November 24, 1999 pursuant to which the parties made certain representations to
each other, and agreed to take certain actions in connection with, and to
provide for certain rights and remedies regarding the transactions contemplated
by, the Securities Agreement.
Other Transactions
On December 17, 1999 and 2000, respectively, pursuant to the terms of the Series
A Preferred Stock owned by Baxter, the Company issued 4,216 additional shares of
Series A Preferred Stock and 4,469 additional shares of Series A Preferred
Stock, respectively, to Baxter as a result of dividends payable in kind.
On December 21, 2000, the Company entered into a sale-leaseback agreement under
which the Company sold certain fixed assets to Baxter that were subsequently
leased back to the Company over a three-year term.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
executive officers, directors and holders of more than 10% of the Common Stock
(collectively, "Reporting Persons") file reports of their holdings and
transactions in the Common Stock with the Securities and Exchange Commission.
Based on a review of Section 16 forms filed by the Reporting Persons during the
last fiscal year and written representations of the Reporting Persons, the
Company believes that the Reporting Persons timely complied with all applicable
Section 16 filing requirements, except that Michel Bergh, Ph.D. and Lewis
Chapman filed late their initial ownership reports on Form 3, William A.
Albright, Jr., David Hirsch, Jeanne Pierson and Amy Ross filed late their
amended initial ownership reports on Form 3, Michael Griffith, Ph.D. filed late
one report on Form 4 relating to two transactions involving a purchase of Common
Stock, Dennis Van Epps, Ph.D., filed late one report on Form 4 relating to one
transaction involving a purchase of Common Stock, L. William McIntosh filed late
one amended report on Form 4 relating to a grant of options, Michel Bergh,
Ph.D., filed late one report on Form 4 relating to a grant of options, Eric A.
Rose, M.D., filed late five reports on Form 4 relating to 21 sales of Common
Stock occurring on 13 different dates and filed late one amended report on Form
5
29
relating to his total holdings, Donald G. Drapkin filed late three reports on
Form 4 relating to 11 sales of Common Stock and William Wong, Ph.D., filed late
one report on Form 4 relating to two sales of Common Stock.
30
PROPOSAL 2
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UNDER
THE 1997 STOCK OPTION PLAN
General
Under the Company's 1997 Incentive and Non-Incentive Stock Option Plan, as
amended, approved by stockholders in 1997, an aggregate of 1,312,500 shares are
reserved for issuance upon exercise of options thereunder. A copy of the 1997
Plan is attached as Appendix B. The 1997 Plan originally authorized 250,000
shares for issuance. In 1998, the Board of Directors and stockholders approved
an amendment to the 1997 Plan increasing the number of shares reserved for
issuance to 500,000, in 1999, the Board of Directors and stockholders approved
an amendment increasing the number of shares reserved for issuance to 750,000,
and in 2000, the Board of Directors and stockholders approved an amendment
increasing the number of shares reserved for issuance to 1,312,500. Under the
1997 Plan, incentive stock options, as defined in section 422 of the Internal
Revenue Code (the "Code"), may be granted to employees and non-incentive stock
options may be granted to employees, directors and other persons as the Stock
Option Committee appointed by the Board of Directors determines will contribute
to the Company's success, at exercise prices equal to at least 100% (with
respect to incentive stock options) and at least 50% (with respect to non-
incentive stock options) of the fair market value of the Common Stock on the
date of grant. In addition to selecting the optionees, the Committee determines
the number of shares of Common Stock subject to each option, the term of each
non-incentive stock option, the time or times when the non-incentive stock
option becomes exercisable, and otherwise administers the 1997 Plan. Options are
granted for a term determined by the Committee, not to exceed ten years, and are
exercisable on terms and conditions determined by the Committee. Generally,
options granted under the 1997 Plan may not be exercised more than three months
following termination of employment or engagement, except terminations by reason
of death or disability, in which case such options may be exercised for one year
following such event. However, the Committee may in its discretion extend the
time required to exercise non-incentive options for up to ten years after the
date of grant. Options become immediately exercisable upon a change in control
as defined in the 1997 Plan. The 1997 Plan will terminate in February 2007
unless earlier terminated by the Board of Directors.
The purpose of the 1997 Plan is to further the growth and development of the
Company by encouraging selected employees, directors and other persons who
contribute and are expected to contribute materially to the Company's success to
obtain a proprietary interest in the Company through the ownership of its Common
Stock, thereby providing such persons with an added incentive to promote the
best interests of the Company and affording the Company a means of attracting
persons of outstanding ability to its service. Approximately 100 employees of
the Company and an indeterminate number of consultants and others are eligible
to participate in the 1997 Plan.
As of the March 1, 2001, options to purchase an aggregate of 1,083,374 shares of
Common Stock had been granted and were outstanding under the 1997 Plan, options
for 13,063 shares had
31
been exercised, 116,063 shares were available for future grants thereunder and
79,140 shares were available for future grants under other plans.
The Board of Directors has proposed that the total number of shares of Common
Stock which may be issued upon the exercise of options granted under the 1997
Plan be increased by 950,000, from 1,312,500 to 2,262,500, to ensure additional
options are available in the future to compensate and motivate existing
participants and employees and to attract employees in the future. Pursuant to
the terms of the 1997 Plan the foregoing proposed increase must be approved by
the stockholders of the Company. In all other respects, the terms of the 1997
Plan will remain unchanged.
Plan Benefits
During the fiscal year ended December 31, 2000, stock options to purchase shares
of Common Stock were granted to the Company's named executive officers, as set
forth in the table captioned "Option Grants in the Fiscal Year Ended December
31, 2000" above. Stock options were granted during the year to all executive
officers of the Company as a group to purchase 449,250 shares of Common Stock at
an average weighted exercise price of $17.63 per share. In addition, stock
options were granted to all other employees of the Company as a group to
purchase 374,493 shares of Common Stock at an average weighted exercise price of
$16.06 per share. The number of options to be granted in the future to the
Company's executive officers and to other employees is not determinable at this
time.
On April 23, 2001, the closing sale price of the Common Stock on The Nasdaq
Stock Market was $1.67 per share.
Federal Income Tax Consequences
The following is based upon federal tax laws and regulations as presently in
effect and does not purport to be a complete description of the federal income
tax aspects of the 1997 Plan. Also, the specific state tax consequences to each
participant under the 1997 Plan may vary, depending upon the laws of the various
states and the individual circumstances of each participant. Accordingly,
participants should consult with their own tax advisors.
Incentive Stock Options
No taxable income is recognized by the optionee upon the grant of an incentive
stock option. Further, no taxable income will be recognized by the optionee upon
exercise of an incentive stock option and no expense deduction will be available
to the Company, provided the optionee holds the shares acquired upon such
exercise for at least two years from the date of grant of the option and for at
least one year from the date of exercise. Any gain on the subsequent sale of the
shares will be considered long-term capital gain provided the two-year and one-
year holding periods are met. The gain recognized upon the sale is equal to the
excess of the amount realized upon the sale (usually the selling price of the
shares) over the exercise price. Therefore, the net federal income tax effect on
an optionee fulfilling the foregoing holding requirements is to defer, until the
shares are sold, taxation of any increase in the value of the shares from the
exercise price
32
and to treat such gain, at the time of sale, as capital gain rather than
ordinary income. However, in general, if the optionee sells the shares within
two years from the date of the option grant or within one year from the date of
exercise (referred to as a "disqualifying disposition"), the optionee will
recognize taxable income at ordinary tax rates in an amount equal to the lesser
of (i) the value of the shares on the date of exercise, less the exercise price;
or (ii) the amount realized on the date of sale, less the exercise price, and
the Company will receive a corresponding business expense deduction. The balance
of any gain recognized on a disqualifying disposition will be long-term or
short-term capital gain depending upon the holding period of the optioned
shares. The special two-year and one-year holding periods for incentive options
do not apply to option shares which are disposed of by the optionee's estate or
a person who acquired such shares by reason of the death of the optionee.
An employee may be subject to the alternative minimum tax upon exercise of an
incentive stock option since the excess of the fair market value of the shares
purchased at the date of exercise over the exercise price must be included in
alternative minimum taxable income, unless the shares are disposed of in the
same year that the option was exercised.
Non-Incentive Stock Options
As in the case of incentive stock options, the grant of a non-incentive stock
option will not result in any taxable income to the optionee. However, the tax
treatment upon exercise of non-incentive stock options is different. Generally,
the optionee will recognize ordinary income when the option is exercised in the
amount by which the fair market value of the shares acquired upon exercise of
the option on the date of exercise exceed the exercise price and the Company
will be entitled to a corresponding business expense deduction. The income
recognized by the optionee is compensation income subject to income tax
withholding by the Company. The Company will generally be entitled to an income
tax deduction for the amount of the "spread" at the time a non-incentive option
is exercised, provided that it complies with applicable reporting and
withholding requirements.
The fair market value of the shares on the date of exercise will constitute the
tax basis of the shares for computing gain or loss on any subsequent sale. Any
gain or loss recognized by the optionee upon the subsequent disposition of the
shares will be treated as capital gain or loss and will qualify as long-term
capital gain or loss if the shares have been held for the requisite holding
period (more than twelve months at the date of this Proxy Statement).
Section 162(m) of the Code
Under Section 162(m) of the Code, certain compensation payments in excess of $1
million are subject to a limitation on deductibility for the Company. The
limitation on deductibility applies with respect to that portion of a
compensation payment for a taxable year in excess of $1 million to either the
Company's Chief Executive Officer or any one of its four other most highly
compensated executive officers. Certain performance-based compensation is not
subject to the limitation on deductibility. Options can qualify for this
performance-based exception, but only if they are granted at fair market value
by a committee comprised solely of "outside directors," the total number of
shares that can be granted to an executive for a specified period is stated, and
33
shareholder and Board approval of the plan is obtained. The Board of Directors
has established certain restrictions on the granting of options under the 1997
Plan to assist in qualifying such compensation for an exemption except that non-
qualified options granted with an exercise price less than the fair market value
of the Common Stock on the date of grant are permitted under the 1997 Plan and
will not qualify for such exemption. Also, in light of the composition of the
Compensation/Stock Option Committee prior to November 1999, options granted
prior thereto will not qualify for such exemption and there can be no assurance
that such exemption will be available in the future.
Required Vote
Approval of the amendment to the 1997 Plan requires the affirmative vote by the
holders of a majority of the outstanding shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
34
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board of Directors has re-
appointed KPMG LLP as independent auditors for the year ending December 31,
2001. KPMG audited the Company's financial statements in fiscal years 2000,
1999, 1998 and 1997. For information regarding fees paid by the Company to KPMG
in 2000, see "Audit Fees," "Financial Information Systems Design and
Implementation Fees, " and "All Other Fees."
It is anticipated that a representative of KPMG LLP will be present at the
Annual Meeting to respond to appropriate questions and to make a statement, if
he or she so desires.
Required Vote
Ratification of the appointment of KPMG LLP as independent auditors will require
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
35
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended December
31, 2000 accompanies this Proxy Statement. The Annual Report includes the
Company's financial statements as reported in its Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 and the report thereon of KPMG LLP,
independent auditors. The Company's Annual Report on Form 10-K may be obtained
without charge upon written request addressed to Investor Relations, Nexell
Therapeutics Inc., 9 Parker, Irvine, California 92618.
STOCKHOLDER PROPOSALS
Under certain circumstances, stockholders are entitled to present proposals for
consideration at stockholder meetings. Any such proposal to be included in the
Proxy Statement for the Company's 2002 Annual Meeting of Stockholders must be
submitted to the Secretary of the Company prior to January 7, 2002 and in
accordance with Rule 14a-8 of the Exchange Act. In addition, proxies solicited
by management may contain discretionary authority to vote on matters which are
not included in the Proxy Statement but which are raised at the Annual Meeting
of Stockholders, unless the Company receives written notice of such matters on
or before March 23, 2002. However, in the event that the date of the 2002 Annual
Meeting of Stockholders is more that 30 days before or more that 30 days after
the anniversary date of the 2001 Annual Meeting, proposals to be considered
timely must be received at a reasonable time before the Company begins to print
and mail its proxy materials. It is suggested that such proposals be sent by
Certified Mail--Return Receipt Requested.
OTHER BUSINESS
Management does not know of any matter to be brought before the Annual Meeting
other than as described above. In the event any other matter properly comes
before the Annual Meeting, the persons named in the accompanying form of proxy
have discretionary authority to vote on such matters.
NEXELL THERAPEUTICS INC.
By Order of the Board of Directors
Wayne Tyo
Secretary
Dated: April 27, 2001
36
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
. Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, legal and
regulatory compliance;
. Monitor the independence and performance of the Company's independent
auditors; and
. Provide an avenue of communication among the independent auditors,
management and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to
the independent auditors as well as anyone in the organization. The Audit
Committee has the ability to retain, at the Company's expense, special
legal, accounting, or other consultants or experts it deems necessary in
the performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of Nasdaq. The Audit
Committee shall be comprised of three or more directors as determined by
the Board, each of whom shall be independent nonexecutive directors, free
from any relationship that would interfere with the exercise of his or her
independent judgment. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements, and at least one member of the Committee
shall have accounting or related financial management expertise.
Audit Committee members shall be appointed by the Board. If an audit
committee Chair is not designated or present, the members of the Committee
may designate a Chair by majority vote of the Committee membership.
The Committee shall meet in person or telephonically as frequently as
circumstances dictate. The Audit Committee Chair may prepare and/or approve
an agenda in advance of each meeting. The Committee should meet privately
in executive session at least annually with management, the independent
auditors, and as a committee to discuss any matters that the Committee or
each of these groups believe should be discussed.
A-1
III. Audit Committee Responsibilities and Duties
Review Procedures
-----------------
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices, and judgments.
3. In consultation with the management and the independent auditors,
consider the integrity of the Company's financial reporting processes
and controls. Discuss significant financial risk exposures and the
steps management has taken to monitor, control, and report such
exposures. Review significant findings prepared by the independent
auditors together with management's responses.
4. Review with financial management and the independent auditors the
company's quarterly financial results prior to the release of earnings
and/or the company's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by the
independent auditors in accordance with SAS 61 (see item 9). The Chair
of the Committee may represent the entire Audit Committee for purposes
of this review.
Independent Auditors
--------------------
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review
the independence and performance of the auditors and annually
recommend to the Board of Directors the appointment of the independent
auditors or approve any discharge of auditors when circumstances
warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
8. Review the independent auditors audit plan - discuss scope, staffing,
locations, reliance upon management and general audit approach.
A-2
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required
to be communicated to audit committees in accordance with AICPA SAS
61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
Internal Audit, Legal and Regulatory Compliance
-----------------------------------------------
11. Assess and monitor the need for an internal audit function.
12. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies.
Other Audit Committee Responsibilities
--------------------------------------
13. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included in
the Company's annual proxy statement.
14. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board
deems necessary or appropriate.
15. May maintain minutes of meetings and shall periodically report to the
Board of Directors on significant results of the foregoing activities.
While the Audit Committee has the responsibilities and powers set
forth in this Charter, it is not the duty of the Audit Committee to
plan or conduct audits or to determine that the Company's financial
statements are complete and accurate and are in accordance with
generally accepted accounting principles. Nor is it the duty of the
Audit Committee to conduct investigations, to resolve disagreements,
if any, between management and the independent auditors or to assure
compliance with laws and regulations.
A-3
APPENDIX B
1997 INCENTIVE AND NON-INCENTIVE
STOCK OPTION PLAN
OF
NEXELL THEAPEUTICS INC.
(FORMERLY NAMED VIMRx PHARMACEUTICALS INC.)
1. Purpose of Plan.
The purpose of this Incentive and Non-Incentive Stock Option Plan
("Plan") is to further the growth and development of VIMRx Pharmaceuticals Inc.
("Company") and any subsidiaries thereof by encouraging selected employees,
directors and other persons who contribute and are expected to contribute
materially to the Company's success to obtain a proprietary interest in the
Company through the ownership of stock, thereby providing such persons with an
added incentive to promote the best interests of the Company and affording the
Company a means of attracting to its service persons of outstanding ability.
2. Stock Subject to the Plan.
An aggregate of 1,312,500/1/ shares of the Company's Common Stock,
$.001 par value ("Common Stock") subject, however, to adjustment or change
pursuant to paragraph 12 hereof, shall be reserved for issuance upon the
exercise of options which may be granted from time to time in accordance with
the Plan ("Options"). Such shares may be, in whole or in part, as the committee
appointed by the Board of Directors to administer the Plan (hereinafter, the
"Committee") shall from time to time determine, authorized but unissued shares
or issued shares which have been reacquired by the Company. If, for any reason,
an Option shall lapse, expire or terminate without having been exercised in
full, the unpurchased shares covered thereby shall again be available for
purposes of the Plan.
3. Administration.
(a) Except as provided in paragraph (c) below, the Plan shall be
administered by the Committee. The Board of Directors shall appoint the
Committee from among its members. Such Committee shall be composed of two or
more Directors who, to the extent practicable, shall be "outside directors" as
defined in regulations under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and "non-employee directors" as defined by
Regulation 240.16b-3 under the Securities Exchange Act of 1934, as amended. Such
Committee shall have and may exercise any and all of the powers relating to the
administration of the Plan and the grant of Options thereunder as are set forth
in subparagraph 3(b) hereof as the Board of Directors shall confer and delegate.
The Board of Directors shall have power at any time to fill vacancies in, to
change the membership of, or to discharge such Committee. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
___________________________
/1/ The Board of Directors has recommended that this be increased to 2,262,500.
See Proposal 2.
B-1
time and at such places as it shall deem advisable. A majority of such Committee
shall constitute a quorum and such majority shall determine its action. Any
action may be taken without a meeting by written consent of all the members of
the Committee. The Committee shall keep minutes of its proceedings and shall
report the same to the Board of Directors at the meeting next succeeding.
(b) The Committee shall administer the Plan and, subject to the
provisions of the Plan, shall have sole authority in its discretion to determine
the persons to whom, and the time or times at which, Options shall be granted;
the number of shares to be subject to each such Option; the provisions regarding
exercisability of each Option; the expiration date of each Option; whether the
Option shall contain a "cashless exercise" provision; whether all or any portion
of the Options shall be incentive stock options ("Incentive Options") qualifying
under Section 422A of the Code or stock options which do not so qualify ("Non-
Incentive Options"); whether a Non-Incentive Option shall have limited
transferability as permitted under the Plan; and whether a Non-Incentive Option
granted to a non-employee shall terminate following the non-employee's
termination of engagement in performing services for the Company or its
subsidiaries pursuant to Section 9 of the Plan. Both Incentive Options and Non-
Incentive Options may be granted to the same person at the same time provided
each type of Option is clearly designated. In making such determinations, the
Committee may take into account the nature of the services rendered by such
persons, their present and potential contribution to the Company's success and
such other factors as the Committee in its sole discretion may deem relevant.
Subject to the express provisions of the Plan, the Committee shall also have
authority to interpret the Plan; to prescribe, amend and rescind rules and
regulations relating thereto; to determine the terms and provisions of the
respective Option Agreements, which shall be substantially in the forms attached
hereto as Exhibit A and Exhibit B; to amend the provisions of outstanding
Options to provide for accelerated exercisability or the extension of the
expiration date of such Options; and to make all other determinations necessary
or advisable for the administration of the Plan, all of which determinations
shall be conclusive and not subject to review.
(c) The Board of Directors may administer the Plan, in lieu of and
with the same powers as the Committee, with respect to any Options granted or to
be granted under the Plan, provided that such administration is consistent with
the provisions of Section 162(m) of the Code.
4. Eligibility for Receipt of Options.
(a) Incentive Options. Incentive Options may be granted only to
employees (including officers) of the Company and/or any of its subsidiaries. A
director of the Company or any subsidiary who is not an employee of the Company
or of one of its subsidiaries is not eligible to receive Incentive Options under
the Plan. Further, Incentive Options may not be granted to any person who, at
the time the Incentive Option is granted, owns (or is considered as owning
within the meaning of Section 425(d) of the Code) stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or any
subsidiary (10% Owner), unless at the time the Incentive Option is granted to
the 10% Owner, the option price is at least 110% of the fair market value of the
Common Stock subject thereto and such Incentive
B-2
Option by its terms is not exercisable subsequent to five years from the date of
grant. The aggregate fair market value (determined as of the time an Incentive
Option is granted) of the shares of the Company's Common Stock initially
purchasable upon exercise of an Incentive Option during any calendar year may
not exceed $100,000.
(b) Non-Incentive Options. Non-Incentive Options may be granted to
any employees (including employees who have been granted Incentive Options),
directors, consultants, agents, independent contractors and other persons whom
the Board of Directors (or Committee) determines will contribute to the
Company's success.
(c) The maximum number of shares that may be subject to options under
this Plan granted during any calendar year to any executive officer of the
Company is 200,000 shares.
(d) In the event an outstanding Incentive Option or a portion thereof
no longer qualifies as an incentive stock option under Section 422A of the Code,
such Option or portion thereof, as applicable, thereafter shall be deemed a Non-
Incentive Option under the Plan.
5. Option Price.
The purchase price of the shares of Common Stock under each Option
shall be determined by the Committee, which determination shall be conclusive
and not subject to review, but in no event shall the purchase price be less than
100% of the fair market value of the Common Stock on the date of grant in the
case of Incentive Options (110% of fair market value in the case of Incentive
Options granted to a 10% Owner) and 50% of the fair market value of the Common
Stock on the date of the grant in the case of Non-Incentive Options.
For purposes of the Plan, unless the Committee determines otherwise,
the fair market value" of a share of Common Stock as of a certain date shall be
the closing sale price of the Common Stock on The Nasdaq Stock Market or, if the
Common Stock is not then traded on The Nasdaq Stock Market, such national
securities exchange on which the Common Stock is then traded, on the trading
date immediately preceding the date the fair market value is being determined.
The Committee may make such other determination of fair market value, based on
other factors, as it shall deem appropriate.
For purposes of the Plan, the date of grant of an Option shall be the
date on which the Committee shall by resolution duly authorize such Option.
6. Term of Options.
The term of each Option shall be such number of years as the Committee
shall determine, subject to earlier termination as herein provided, but in no
event more than ten years from the date the Option is granted.
7. Exercise of Options.
B-3
(a) Each Option shall be exercisable to the extent determined by the
Committee, but in no event shall an Option be exercisable until at least six
months from the date of grant, except as otherwise provided in Paragraph 13
herein.
(b) An Option may not be exercised for fractional shares of the
Company's Common Stock.
(c) Except as provided in paragraphs 9, 10 and 11 hereof, and unless
determined otherwise by the Committee with respect to Non-Incentive Options
granted to non-employees, no Option shall be exercisable unless the holder
thereof shall have been an employee, director, consultant, agent, independent
contractor or other person employed by or engaged in performing services for the
Company and/or a subsidiary continuously from the date of grant to the date of
exercise.
(d) The exercise of an Option shall be contingent upon receipt from
the holder thereof of a written representation that at the time of such exercise
it is the optionee's then present intention to acquire the Option shares for
investment and not with a view to the distribution or resale thereof (unless a
Registration Statement covering the shares purchasable upon exercise of the
Options shall have been declared effective by the Securities and Exchange
Commission) and upon receipt by the Company of cash, or a check to its order,
for the full purchase price of such shares. The Committee may, in its
discretion, include a "cashless exercise" provision in the applicable Option
Agreement, in which event the optionee will be permitted (i) to deliver
previously owned shares of Common Stock with a fair market value equal to the
exercise price in payment of the full purchase price of such shares, or (ii) to
request that the Company withhold shares of Common Stock issuable upon exercise
of such Option with a fair market value equal to the exercise price of the
shares being purchased under the Option (thereby reducing the number of shares
issuable upon exercise of the Option).
(e) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares purchasable upon exercise of the Option
until a certificate for such shares shall have been issued to the holder upon
due exercise of the Option.
(f) The proceeds received by the Company upon exercise of an Option
shall be added to the Company's working capital and be available for general
corporate purposes.
8. Transferability of Options.
No Option granted pursuant to the Plan shall be transferable otherwise
than by will or the laws of descent or distribution and an Option may be
exercised during the lifetime of the holder only by such holder, provided,
however, that the Committee may provide for transferability of a Non-Incentive
Option to an optionee's family members or family trusts.
9. Termination of Employment or Engagement.
(a) Except as provided in paragraph (b) below, in the event the
employment of the holder of an Option shall be terminated by the Company or a
subsidiary for any reason
B-4
other than by reason of death or disability, or the engagement of a non-employee
holder of a Non-Incentive Option shall be terminated by the Company or a
subsidiary for any reason, such holder may, within three months from the date of
such termination, exercise such Option to the extent such Option was exercisable
by such holder at the date of such termination. Notwithstanding the foregoing,
no Option may be exercised subsequent to the date of its expiration. Absence on
leave approved by the employer corporation shall not be considered an
interruption of employment for any purpose under the Plan. In addition, at the
discretion of the Committee, the exercisability of an outstanding Non-Incentive
Option may be extended to a date determined by the Committee but not beyond ten
years from the date of grant.
(b) The Committee may, in its discretion, at the time of grant or by
amending the applicable outstanding Non-Incentive Option, delete the foregoing
termination provision with respect to a Non-Incentive Option granted to a non-
employee of the Company or its subsidiaries.
(c) Nothing in the Plan or in any Option Agreement granted hereunder
shall confer upon any Optionholder any right to continue in the employ of the
Company or any subsidiary or obligate the Company or any subsidiary to continue
the engagement of any Optionholder or interfere in any way with the right of the
Company or any such subsidiary to terminate such Optionholder's employment or
engagement at any time.
10. Disability of Holder of Option.
If the employment of the holder of an Option shall be terminated by
reason of such holder's disability, such holder may, within twelve months from
the date of such termination, exercise such option to the extent such Option was
exercisable by such holder at the date of such termination. Notwithstanding the
foregoing, no Option may be exercised subsequent to the date of its expiration.
11. Death of Holder of Option.
If the holder of any Option shall die while in the employ of, or while
performing services for, the Company or one or more of its subsidiaries (or
within six months following termination of employment due to disability), the
Option theretofore granted to such person may be exercised, but only to the
extent such Option was exercisable by the holder at the date of death (or, with
respect to employees, the date of termination of employment due to disability)
by the legatee or legatees of such person under such person's Last Will, or by
such person's personal representative or distributees, within twelve months from
the date of death but in no event subsequent to the expiration date of the
Option.
12. Adjustments Upon Changes in Capitalization.
If at any time after the date of grant of an Option, the Company shall
by stock dividend, split-up, combination, reclassification or exchange, or
through merger or consolidation or otherwise, change its shares of Common Stock
into a different number or kind or class of shares or other securities or
property, then the number of shares covered by such Option and the price per
share thereof shall be proportionately adjusted for any such change by the
Committee
B-5
whose determination thereon shall be conclusive.
13. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company (as
defined below), all outstanding Options shall become immediately fully
exercisable. For purposes of the Plan, a "change in control" of the Company
shall mean (i) the acquisition at any time by a "person" or "group" (as such
terms are used Sections 13(d) and 14(d)(2) of the Exchange Act of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities representing 50% or more of the combined voting power
in the election of directors of the then outstanding securities of the Company
or any successor or the Company; (ii) the termination of service of directors,
for any reason other than death, disability or retirement from the Board of
Directors, during any period of two consecutive years or less, of individuals
who at the beginning of such period constituted a majority of the Board of
Directors, unless the election of or nomination for election of each new
director during such period was approved by a vote of at least two-thirds of the
directors still in office who were directors at the beginning of the period;
(iii) approval by the stockholders of the Company of any merger, consolidation,
or statutory share exchange as a result of which the Common Stock shall be
changed, converted or exchanged (other than a merger, consolidation or share
exchange with a wholly-owned Subsidiary) or liquidation of the Company or any
sale or disposition of 80% or more of the assets or earning power or the
Company; or (iv) approval by the stockholders of the Company of any merger,
consolidation, or statutory share exchange to which the Company is a party as a
result of which the persons who were stockholders immediately prior to the
effective date of the merger, consolidation or share exchange shall have
beneficial ownership of less than 50% of the combined voting power in the
election of directors of the surviving corporation; provided, however, that no
change in control shall be deemed to have occurred if, prior to such time as a
change in control would otherwise be deemed to have occurred, the Company's
Board of Directors deems otherwise.
14. Vesting of Rights Under Options.
Neither anything contained in the Plan nor in any resolution
adopted or to be adopted by the Committee, the Board of Directors or the
stockholders of the Company shall constitute the vesting of any rights under any
Option. The vesting of such rights shall take place only when a written Option
Agreement, substantially in the form of the Incentive Stock Option Agreement
attached hereto as Exhibit A or the Non-Incentive Stock Option Agreement
attached hereto as Exhibit B, shall be duly executed and delivered by and on
behalf of the Company and the person to whom the Option shall be granted.
15. Withholding Taxes.
Whenever under the Plan shares are to be issued in satisfaction
of the exercise of Options granted thereunder, the Company shall have the right
to require the recipient to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares.
B-6
16. Termination and Amendment.
The Plan, which was adopted by the Board of Directors on February 6,
1997 and is subject to stockholder approval, shall terminate on February 6, 2007
and no Option shall be granted under the Plan after such date. The Board of
Directors may at any time prior to such date terminate the Plan or make such
modifications or amendments thereto as it shall deem advisable, provided,
however, that shareholder approval shall be required:
(i) to increase the number of shares reserved for issuance under the
Plan;
(ii) materially increase the benefits accruing to participants under the
Plan;
(iii) materially modify the requirements of eligibility for participation
in the Plan; or
(iv) if otherwise required to comply with the incentive stock option
provisions of Section 162(m) of the Code or the listed company
requirements of The Nasdaq Stock Market or of a national securities
exchange on which the Common Stock is then traded,
and, provided, further, that no modification or amendment shall adversely affect
the rights of a holder of an Option previously granted under the Plan without
such holder's written consent.
B-7
PROXY CARD
NEXELL THERAPEUTICS INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 21, 2001
The undersigned hereby appoints RICHARD L. DUNNING and WILLIAM A. ALBRIGHT, JR.,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of Common Stock of Nexell
Therapeutics Inc. which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of Nexell Therapeutics Inc. to be held at the Doubletree
Hotel, 90 Pacifica Avenue, Irvine, California on Thursday, June 21, 2001 at 9:00
a.m., Pacific Daylight Time, and at any and all continuations and adjournments
thereof, with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with the
following instructions, with discretionary authority as to any and all other
matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3 AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH. THE BOARD OF DIRECTORS OF THE
COMPANY RECOMMENDS A VOTE IN FAVOR OF ALL OF THE NOMINEES LISTED IN PROPOSAL 1
AND FOR APPROVAL OF PROPOSALS 2 AND 3.
(CONTINUED ON OTHER SIDE)
[X] Please mark your vote as in this example.
PROPOSAL 1: To elect a Board of eight directors.
[_] FOR all nominees [_] WITHHOLD Nominees:
listed at right AUTHORITY to vote Richard L. Dunning
(except as marked for all nominees listed Eric A. Rose, M.D.
to the contrary below). at right. Victor W. Schmitt
C. Richard Piazza
Joseph A. Mollica, Ph.D.
Richard L. Casey
Daniel Levitt, M.D., Ph.D.
William A. Albright, Jr.
To withhold authority to vote for any nominee(s), write such nominee(s)' name(s)
below:
_______________________________________________________________________________
PROPOSAL 2: To increase the number of shares of Common Stock issuable under the
Company's 1997 Incentive and Non-Incentive Stock Option Plan from
1,312,500 to 2,262,500.
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 3: To ratify the appointment of KPMG LLP as independent auditors of
the Company for the year ending December 31, 2001.
[_] FOR [_] AGAINST [_]ABSTAIN
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE, WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES. THANK YOU.
Signature(s):___________________________________________ Date:_______________
Note: Please sign exactly as your name appears hereon. If the stock is
registered in the names of two or more persons, each should sign. Executors,
administrators, trustees, guardians and attorneys-in-fact should add their
titles. If signer is a corporation, please give full corporate name and have a
duly authorized officer sign, stating title. If signer is a partnership, please
sign in partnership name by authorized person.
[_] If you plan on attending the meeting, please check this box.
[_] For comments, please check this box and write your comments below.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________