<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-27150
__________________
PATHOGENESIS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 91-1542150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
201 Elliott Avenue West, Seattle, Washington 98119
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (206) 467-8100
__________________
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _______
-------
On August 13, 1999, the registrant had an aggregate of 16,404,167 shares of
Common Stock issued and outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements Pathogenesis Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 4,480,597 $ 8,139,153
Investment securities.................................................... 37,033,085 46,868,390
Accounts receivable, net................................................. 4,450,155 10,961,242
Interest receivable...................................................... 339,356 427,618
Inventories.............................................................. 15,652,052 9,907,916
Other.................................................................... 1,911,180 3,480,022
------------- ------------
Total current assets................................................ 63,866,425 79,784,341
------------- ------------
Restricted investment...................................................... 675,000 675,000
Property and equipment, at cost:
Land..................................................................... 3,194,923 3,194,923
Building and improvements................................................ 1,515,543 1,515,543
Leasehold improvements................................................... 9,600,129 9,367,898
Furniture and equipment.................................................. 15,010,620 13,263,162
------------- ------------
29,321,215 27,341,526
Less accumulated depreciation and amortization........................... 11,229,185 9,704,385
------------- ------------
Net property and equipment.......................................... 18,092,030 17,637,141
------------- ------------
License rights, net........................................................ 14,076,725 14,562,129
Other assets............................................................... 967,433 107,136
------------- ------------
Total assets............................................................. $ 97,677,613 $112,765,747
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 394,538 $ 1,180,909
Compensation and benefits................................................ 1,771,182 2,580,790
Clinical development costs............................................... 437,061 199,869
Accrued royalties........................................................ 611,436 827,739
License payable.......................................................... -- 2,000,000
Other accrued expenses................................................... 2,659,891 2,691,572
Current portion of long-term liability................................... 4,929,664 5,149,847
------------- ------------
Total current liabilities........................................... 10,803,772 14,630,726
------------- ------------
Long-term liability, net of current portion................................ -- 4,724,630
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized
1,000,000 shares; none issued and outstanding........................... -- --
Common stock, $0.001 par value.
Authorized 60,000,000 shares; 16,394,969 shares and 16,328,580 shares
issued and outstanding at June 30, 1999 and December 31, 1998,
respectively........................................................... 16,395 16,329
Additional paid-in capital............................................... 193,982,214 193,188,363
Deferred compensation.................................................... (756,677) (987,156)
Accumulated other comprehensive income (loss) --
unrealized gain (loss) on investment securities......................... (190,566) 133,117
Accumulated deficit...................................................... (106,177,525) (98,940,262)
------------- ------------
Total stockholders' equity............................................... 86,873,841 93,410,391
------------- ------------
Total liabilities and stockholders' equity............................... $ 97,677,613 $112,765,747
============= ============
</TABLE>
See accompanying notes.
1
<PAGE>
Pathogenesis Corporation
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales....................................... $ 14,065,449 $ 13,561,579 $ 24,121,584 $ 28,088,610
Grants and royalties........................ 235,600 88,049 439,863 225,915
--------------- --------------- --------------- ---------------
Total revenues..................... 14,301,049 13,649,628 24,561,447 28,314,525
Operating expenses:
Cost of sales............................... 2,546,929 2,112,600 4,748,990 4,782,416
Research and development.................... 7,478,589 6,932,011 14,319,058 13,692,415
Selling, general and administrative......... 7,202,059 4,604,304 13,739,630 9,952,534
--------------- --------------- --------------- ---------------
Total operating expenses........... 17,227,577 13,648,915 32,807,678 28,427,365
--------------- --------------- --------------- ---------------
Operating income (loss) (2,926,528) 713 (8,246,231) (112,840)
--------------- --------------- --------------- ---------------
Other income (expense):
Investment income, net...................... 696,021 1,030,621 1,523,221 2,162,264
Interest expense............................ (183,289) (48,890) (401,669) (48,890)
Other expense............................... (85,804) (647) (112,584) (34,147)
--------------- --------------- --------------- ---------------
Net other income................... 426,928 981,084 1,008,968 2,079,227
--------------- --------------- --------------- ---------------
Net income (loss).................. $ (2,499,600) $ 981,797 $ (7,237,263) $ 1,966,387
=============== =============== =============== ===============
Income (loss) per common share:
Basic....................................... $ (0.15) $ 0.06 $ (0.44) $ 0.12
================ =============== ================ ===============
Diluted..................................... $ (0.15) $ 0.06 $ (0.44) $ 0.11
================ =============== ================ ===============
Weighted average common shares outstanding:
Basic....................................... 16,394,038 16,252,516 16,386,475 16,247,857
Diluted..................................... 16,394,038 17,096,216 16,386,475 17,117,247
</TABLE>
See accompanying notes.
2
<PAGE>
Pathogenesis Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ (7,237,263) $ 1,966,387
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization................................ 1,682,856 1,302,764
Amortization of license rights............................... 485,404 --
Amortization of discount on long-term liability.............. 388,520 48,890
Compensation expense from stock options...................... 230,479 199,253
Loss on sale of property and equipment 33,489 --
Change in certain assets and liabilities:
Accounts receivable....................................... 6,511,087 (5,230,918)
Interest receivable....................................... 88,262 102,678
Inventories............................................... (5,744,136) (4,059,125)
Other current assets...................................... 1,568,842 700,374
Other assets.............................................. (860,297) 15,897
Accounts payable.......................................... (786,371) (648,123)
Compensation and benefits................................. (809,608) (160,903)
Clinical development costs................................ 237,192 (1,739,794)
Accrued royalties......................................... (216,303) 1,234,910
License payable........................................... (2,000,000) --
Other accrued expenses.................................... (31,681) 1,872,404
----------------- ------------------
Net cash used in operating activities.................. (6,459,528) (4,395,306)
----------------- ------------------
Cash flows from investing activities:
Purchases of investment securities............................... (16,163,747) (34,355,734)
Sales of investment securities................................... 25,675,369 42,215,624
Purchases of property and equipment.............................. (2,171,234) (2,462,939)
Purchase of license rights....................................... -- (5,333,334)
----------------- ------------------
Net cash provided by investing activities.............. 7,340,388 63,617
----------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of common stock in connection
with employee stock purchase plan............................ 353,069 --
Stock option and warrant exercises............................... 440,848 277,828
Payment of long-term liability................................... (5,333,333) --
------------------ ------------------
Net cash provided by (used in) financing activities.... (4,539,416) 277,828
------------------ ------------------
Net decrease in cash and cash equivalents.............. (3,658,556) (4,053,861)
Cash and cash equivalents at beginning of period..................... 8,139,153 5,171,591
----------------- ------------------
Cash and cash equivalents at end of period........................... $ 4,480,597 $ 1,117,730
================= ==================
Supplemental schedule of noncash investing and financing activities -
Seller-financed acquisition of license rights.................... -- 9,778,094
</TABLE>
See accompanying notes.
3
<PAGE>
Pathogenesis Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
We have prepared the accompanying condensed consolidated financial
statements of PathoGenesis Corporation and subsidiaries and these notes in
accordance with Securities and Exchange Commission rules and regulations for
interim financial statements. As permitted by those rules and regulations, we
have condensed or omitted certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles. You should read the accompanying condensed consolidated
financial statements and these notes in conjunction with our audited
consolidated financial statements for 1998 included in our annual report on Form
10-K.
The information furnished reflects, in the opinion of our management,
all adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the results for the interim periods presented. Interim results
are not necessarily indicative of results for a full year.
(2) INVENTORIES
Inventories are stated at the lower of cost, as determined by the
first-in, first-out method, or market. Inventories consisted of the following:
June 30, 1999 December 31, 1998
------------- -----------------
Finished goods $ 5,466,656 $ 4,174,206
Work in progress 393,718 2,747,380
Raw materials and supplies 9,791,678 2,986,330
------------- ------------
$ 15,652,052 $ 9,907,916
============= ============
(3) COMPUTATION OF PER SHARE INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic income (loss) per share computation:
Numerator:
Net income (loss) $ (2,499,600) $ 981,797 $ (7,237,263) $ 1,966,387
-------------- -------------- -------------- --------------
Denominator:
Weighted average common shares 16,394,038 16,252,516 16,386,475 16,247,857
-------------- -------------- -------------- --------------
Basic income (loss) per share $ (0.15) $ 0.06 $ (0.44) $ 0.12
============== ============== ============== ==============
Diluted income (loss) per share computation:
Numerator:
Net income (loss) $ (2,499,600) $ 981,797 $ (7,237,263) $ 1,966,387
-------------- -------------- -------------- --------------
Denominator:
Weighted average common shares 16,394,038 16,252,516 16,386,475 16,247,857
Effect of dilutive securities:
Common stock warrants -- 33,952 -- 34,648
Stock options -- 809,748 -- 834,742
-------------- -------------- -------------- --------------
Dilutive potential common shares -- 843,700 -- 869,390
-------------- -------------- -------------- --------------
Denominator for diluted income
(loss) per share 16,394,038 17,096,216 16,386,475 17,117,247
-------------- -------------- -------------- --------------
Diluted income (loss) per share $ 0.15) $ 0.06 $ (0.44) $ 0.11
============== ============== ============== ==============
</TABLE>
4
<PAGE>
We have not included options and warrants to purchase 3,466,900 and
604,055 shares of common stock that were outstanding during the second quarter
of 1999 and 1998, respectively, in the computation of diluted income (loss) per
share because the representative share increments would be antidilutive. For the
same reason, we have not included options and warrants to purchase 3,527,957 and
569,455 shares of common stock that were outstanding during the six-month period
ended June 30, 1999 and 1998, respectively, in the computation of diluted income
(loss) per share.
(4) COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) amounted to $(2,690,887) for the
second quarter of 1999 and $1,017,866 for the second quarter of 1998. Total
comprehensive income (loss) for the six-month periods ended June 30, 1999 and
1998 amounted to $(7,560,946) and $2,055,034, respectively. Our other
comprehensive income (loss) is comprised of unrealized gains and losses on
available-for-sale securities.
(5) BUSINESS SEGMENTS
In 1998, we adopted Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 requires an enterprise to report segment information based on how
management internally evaluates the operating performance of its business units
(segments). Our operations are confined to one business segment, the development
of drugs to treat chronic infectious diseases.
(6) FACILITY AGREEMENT
On February 22, 1999, we entered into a facility agreement with Harris
Trust and Savings Bank. The agreement provides us with a $10.0 million revolving
line of credit in the form of short-term demand loans. The loans may bear
interest at floating rates based on LIBOR (London Interbank Offered Rate), the
bank's prime commercial rate or a combination of both, and may be converted from
one basis to another from time to time in accordance with the terms of the
agreement. The credit facility, subject to annual review, will be available to
us on an uncommitted basis. We have not drawn funds under this facility
agreement to date.
(7) CONTINGENCY
PathoGenesis Corporation, its chief executive officer and its chief
financial officer are named as defendants in eight purported class action
lawsuits pending in the United States District Court for the Western District of
Washington. These suits purport to allege claims on behalf of all purchasers of
PathoGenesis common stock and purchasers and/or sellers of related derivative
securities during the period January 25-26, 1999 to March 22, 1999. The suits
allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and Rule 10b-5 under that Act, in connection with certain announcements by
the company regarding its expected 1999 results, and seek unspecified damages.
We intend to defend the lawsuits vigorously.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In addition to historical information, this quarterly report on Form
10-Q contains forward-looking statements. You may identify these forward-looking
statements by the use of such words as "believe," "anticipate," "expect," "plan"
and "intend," among others. Since these statements are based on factors that
involve risks and uncertainties, they do not necessarily indicate what our
actual future results will be, and results may vary from quarter to quarter.
Important factors that could cause or contribute to material differences between
our actual results and the results expressed or implied by the forward-looking
statements include, but are not limited to, those discussed in "Item 1.
Business," "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" of our annual report on Form 10-K for 1998, and in
Exhibit 99.1 to the Form 10-K. These factors include, but are not limited to,
uncertainties related to the fact that PathoGenesis began commercial operations
only recently, its dependence on TOBI(R) (tobramycin solution for inhalation),
the degree of penetration of its markets, the frequency of TOBI's use by
patients, third party reimbursement and product pricing, seasonal impacts on
hospitalizations or exacerbations experienced by cystic fibrosis patients,
variability in wholesaler ordering patterns, government regulation, drug
development and clinical trials, competition and alternative therapies, and the
potential impact of litigation. We cannot assure you that TOBI -- which is
currently our only product -- will penetrate markets as planned, that our
development of TOBI for other uses will succeed or occur within anticipated time
frames, or that we will develop any of our other drug candidates successfully.
Overview
In the second quarter of 1999, we continued to make strides in
marketing TOBI to cystic fibrosis patients in the United States. In order to
further penetrate this market, we increased our sales force by 30% this year,
which allows us to call on more pulmonologists. We also expanded our advisory
board of respected cystic fibrosis physicians, who are advising us on
communicating the extensive data and information now available on TOBI. In
addition, they are conducting seminars and conference calls with other
clinicians.
We also continued our efforts to expand the international market for
TOBI this quarter. We launched TOBI sales in Canada and Argentina in the second
quarter of 1999. The drug continues to progress through regulatory reviews in
the United Kingdom, the lead country for the drug's approval in the European
Union. The Medicines Control Agency has completed its review of the
manufacturing facilities and is now reviewing the clinical data on TOBI's safety
and efficacy. We currently expect the review to be completed in the fourth
quarter of 1999. If approved in the fourth quarter, we would anticipate the U.K.
launch of TOBI in the first quarter of 2000.
In June 1999, we presented encouraging two-year data on TOBI at a
satellite meeting of the 23rd European Cystic Fibrosis Conference. The data show
that patients treated with TOBI for up to two years had on average a 4.8%
relative improvement in lung function above the baseline. This compares to an
annual relative lung function decline of 2% to 7% in comparable cystic fibrosis
patients receiving standard therapies, or about 4% to 14% over two years. While
TOBI therapy resulted in treatment benefits for all age groups, patients who
were 13 to 17 years old demonstrated a larger treatment effect of 14.3% in
relative lung function improvement above the baseline after two years.
Additional data from the two-year study of TOBI will be presented at the North
American Cystic Fibrosis Conference in October 1999.
In April 1999, strong clinical trial results in bronchiectasis
patients were announced at the American Lung Association/American Thoracic
Society International Conference. Based on these promising results, we are
actively moving forward on developing a Phase III protocol for testing TOBI in
bronchiectasis patients. In addition, the investigators plan to submit an
article to a respected peer-reviewed scientific journal. Using that article, we
intend to request approval from the FDA to inform physicians about TOBI for
bronchiectasis under the provisions of the FDA Modernization Act.
We continue to make progress on the development of PA-1420 (polymyxin
E1) and PA-1806. We plan to request approval from the FDA later this year for a
Phase I clinical trial of PA-1420. We currently are in preclinical studies for
PA-1806 for aerosolized delivery for the treatment or prophylaxis of respiratory
tract infectious diseases. These two drug candidates have mechanisms of action
different from each other and from TOBI, consistent with our goal of developing
a portfolio of aerosolized antibiotics.
6
<PAGE>
Results of Operations
Three Months Ended June 30, 1999 and 1998
Revenues in the second quarter of 1999 totaled $14.3 million,
including $14.1 million from TOBI sales. Research grants and royalties generated
the balance of $236,000. Revenues for the corresponding period in 1998 were
$13.7 million, including $13.6 million from TOBI sales. Research grants and
royalties generated the balance of $88,000 in the second quarter of 1998.
Operating Expenses. We incurred total operating expenses of $17.2
million in the second quarter of 1999, an increase of $3.6 million from $13.6
million in the second quarter of 1998. The planned expansion of our sales force
in the U.S. and investments in an international sales and marketing organization
accounted for the majority of the increase. We expect operating expenses to
continue to rise in the remaining quarters of 1999 as marketing of TOBI expands
further and research and development efforts progress.
Cost of sales was $2.5 million in the second quarter of 1999, an
increase of $434,000 from $2.1 million in the second quarter of 1998. Our
research and development expenses for the second quarter of 1999 increased by
$547,000 to $7.5 million from $6.9 million for the corresponding period in 1998.
Selling, general and administrative expenses increased to $7.2 million in the
second quarter of 1999 from $4.6 million for the corresponding period in 1998.
The increase in selling, general and administrative expenses is associated with
the expansion of our sales and marketing capabilities.
Net Income (Loss). We had an operating loss of $2.9 million in the
second quarter of 1999, compared to operating income of $713 for the
corresponding period in 1998. This decline in operating results was due to the
increase in second quarter operating expenses. Including net other income
(primarily income from investment securities), our net loss for the second
quarter of 1999 was $2.5 million, compared to net income of $982,000 for the
second quarter of 1998. In the second quarter of 1999, net investment income
decreased by $335,000 to $696,000 from $1.0 million for the corresponding period
in 1998. The decrease was mainly due to lower average invested cash balances.
Interest expense in the second quarter of 1999 totaled $183,000, most of which
represents the amortization of the discount on the remaining installments of our
obligation to the Cystic Fibrosis Foundation. Interest expense totaled $49,000
in the corresponding period in 1998.
Six Months Ended June 30, 1999 and 1998
Revenues. Revenues in the first six months of 1999 totaled $24.6
million, including $24.1 million from TOBI sales. Research grants and royalties
generated the balance of $440,000. Revenues for the corresponding period in 1998
were $28.3 million, including $28.1 million from TOBI sales in the first six
months of the drug's launch. This included initial purchases of stock to fill
distributors' shelves. Research grants and royalties generated the balance of
$226,000 in the first six months of 1998.
Operating Expenses. We incurred total operating expenses of $32.8
million in the first six months of 1999, an increase of $4.4 million from $28.4
million in the first six months of 1998. Investments in U.S. and international
sales and marketing accounted for the majority of the increase. In addition,
research and development expenses rose as we continued preclinical studies on
PA-1420 and PA-1806, and pursued regulatory approval of TOBI in Canada, Europe
and other markets.
Cost of sales was $4.7 million in the first six months of 1999, a
decrease of $33,000 from $4.8 million in the first half of 1998. This decline
was a direct result of lower TOBI sales in the first six months of 1999, with
cost of sales as a percentage of sales rising as sales volumes decreased. Our
research and development expenses for the first six months of 1999 increased by
$627,000 to $14.3 million from $13.7 million for the corresponding period in
1998. Selling, general and administrative expenses increased to $13.7 million in
the first half of 1999 from $10.0 million for the corresponding period in 1998
due to our U.S. sales force expansion and investments in an international sales
and marketing organization.
7
<PAGE>
Net Income (Loss). We had an operating loss of $8.2 million in the
first six months of 1999, an increase of $8.1 million from the operating loss of
$113,000 for the corresponding period in 1998. This increase in operating loss
was due in part to a decline in TOBI sales revenues in the first six months of
1999, in addition to an increase in operating expenses. Including net other
income (primarily income from investment securities), our net loss for the first
six months of 1999 was $7.2 million, compared to net income of $2.0 million for
the first half of 1998. In the first six months of 1999, net investment income
decreased by $639,000 to $1.5 million from $2.2 million for the corresponding
period in 1998. The decrease was mainly due to lower average invested cash
balances. Interest expense in the first six months of 1999 totaled $402,000,
most of which represents the amortization of the discount on the remaining
installments of our obligation to the Cystic Fibrosis Foundation. Interest
expense totaled $49,000 for the first half of 1998.
Liquidity and Capital Resources
Our combined cash, cash equivalents and investment securities totaled
$41.5 million at June 30, 1999, a decrease of $13.5 million from the balance of
$55.0 million at December 31, 1998. We expect that these funds, in combination
with expected revenues from sales of TOBI, should be sufficient to meet our
operating expenses and capital requirements for the foreseeable future. In
addition, on February 22, 1999, we secured a $10.0 million revolving line of
credit from Harris Trust and Savings Bank. During the six months ended June 30,
1999, the primary uses of cash and investments were to finance our operations.
Net cash used in operating activities totaled $6.5 million for the first half of
the year, compared to $4.4 million in the six months ended June 30, 1998. The
increase in net cash used resulted principally from our $7.2 million net loss
for the six months ended June 30, 1999, compared to net income of $2.0 million
in the first half of 1998. Significant changes in working capital components
included a $6.5 million decrease in accounts receivable and $5.7 million
increase in inventory, compared to increases of $5.2 million and $4.1 million,
respectively, in the same period a year ago. In addition, we made our second
installment payment of $5.3 million for the rights in TOBI acquired from the
Cystic Fibrosis Foundation. At June 30, 1999, our working capital was $53.1
million and current ratio was 5.91 to 1.
We plan to continue our policy of investing excess funds in government
securities and investment grade, interest-bearing securities, primarily those
with an expected maturity of one-and-one-half years or less.
Certain purported class action lawsuits have been filed against
PathoGenesis and certain of its officers, alleging claims on behalf of all
purchasers of PathoGenesis common stock and purchasers and/or sellers of related
derivative securities during the period January 25-26, 1999 to March 22, 1999
(see "Item 1. Legal Proceedings" in Part II of this report on Form 10-Q for
further information). We intend to vigorously defend the actions. Although we
cannot ascertain the ultimate outcome of these actions at this time or predict
with certainty the results of legal proceedings, we currently believe that the
resolution of those actions will not have a material adverse effect on the
company's financial position or results of operations.
YEAR 2000
Many computer systems may experience difficulty processing dates beyond
the year 1999 and will need to be modified before the year 2000. Failure to make
such modifications could result in system failures or miscalculations,
disrupting operations. Most of our information technology purchases were made
after January 1997. Since our systems are relatively new and there were no
legacy systems to integrate, and based on the program described below, we
believe our internal software and hardware systems will function properly when
the year 2000 arrives. Therefore, we do not expect our year 2000 compliance
costs to exceed $50,000 in 1999, excluding the costs of technology upgrades made
in the ordinary course of business.
Our ongoing compliance program includes verification testing of our
internal information technology and information systems. According to the
vendors of those systems, all the systems purchased after January 1997 are year
2000-compliant (i.e., they support proper processing of date-sensitive
transactions after 1999). The existing
8
<PAGE>
systems that are not year 2000-compliant represent a small percentage of our
systems. We anticipate that almost all noncompliant systems will be replaced as
part of normal technology upgrades before January 1, 2000. We will evaluate the
remaining systems on an individual basis. We expect upgrades and replacements to
be made by the end of the third quarter of 1999, where necessary.
We are in contact with key third parties, such as suppliers, customers
and financial institutions, to assure no interruption of our business
relationships will occur due to year 2000 compliance issues. However, if the
needed conversions or modifications to computer or other systems are not made,
or are not completed in a timely way by these third parties, the year 2000 issue
could have a material impact on our operations.
While we believe that our hardware and software applications are or
will be year 2000-compliant, there can be no assurance that all systems will
function adequately when the year 2000 arrives, nor can there be any assurance
that we will not be adversely affected by the year 2000 problems of third
parties. In the case of internal system malfunctions, or in the event our
suppliers and vendors are not year 2000-compliant, we are developing manual
backup procedures to mitigate the risk of loss associated with the year 2000
issue.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes and changes in
the market values of our investments. Our exposure to market rate risk for
changes in interest rates relates primarily to debt securities included in our
investment portfolio. We do not have any derivative financial instruments. We
invest in government securities and high-quality corporate obligations.
Investments in both fixed rate and floating rate interest-earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.
Due in part to these factors, our future investment income may fall short of
expectations due to changes in interest rates or we may suffer losses in
principal if forced to sell securities which have declined in market value due
to changes in interest rates. At June 30, 1999, we owned $4.1 million in
government debt instruments and $32.9 million in corporate debt securities. Our
exposure to losses as a result of interest rate changes is managed through
investing in securities predominantly with maturities of one-and-one-half years
or less.
9
<PAGE>
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
PathoGenesis Corporation, its chief executive officer and its chief
financial officer are named as defendants in eight purported class action
lawsuits pending in the United States District Court for the Western District of
Washington: Lipton v. PathoGenesis et al., C99-0419, filed on March 24, 1999;
Green v. PathoGenesis et al., C99-0439, filed on March 26, 1999; Gellert v.
PathoGenesis et al., C99-0452, filed on March 29, 1999; May v. PathoGenesis et
al., C99-0453, filed on March 29, 1999; Shapiro v. PathoGenesis et al., C99-
0455, filed on March 29, 1999; Bassin v. PathoGenesis et al., C99-0469, filed on
March 30, 1999; Barker v. PathoGenesis et al., C99-0503, filed on April 6, 1999;
and Kralovk v. PathoGenesis et al., C99-0506, filed on April 6, 1999. These
suits purport to allege claims on behalf of all purchasers of PathoGenesis
common stock and purchasers and/or sellers of related derivative securities
during the period January 25-26, 1999 to March 22, 1999. The suits allege
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
and Rule 10b-5 under that Act, in connection with certain announcements by the
company regarding its expected 1999 results and seek unspecified damages. The
company intends to defend the lawsuits vigorously.
Item 2 Changes in Securities
NONE
Item 3 Defaults Upon Senior Securities
NONE
Item 4 Submission of Matters to a Vote of Security-Holders
The annual meeting of shareholders of PathoGenesis was held on June 2,
1999. The following summarizes the votes at the meeting:
Matter For Withheld
- ------ --- --------
Election of Class I Directors:
Elizabeth M. Greetham 14,919,193 27,852
Alan R. Meyer 14,916,091 30,954
Michael J. Montgomery 14,917,441 29,604
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--- ------- ------- --------
<S> <C> <C> <C> <C>
Approval of the 1999
Stock Plan 12,683,264 2,231,879 31,902 --
Ratification of the appointment of
KPMG LLP as independent
accountants for 1999 14,910,998 16,626 19,421 --
</TABLE>
10
<PAGE>
Item 5 Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
-------------- ----------------------
<S> <C>
3.2 PathoGenesis Corporation By-Laws (as amended through
June 3, 1999).
4.8 Form of Stock Option Agreement for 1997 Stock Option
Plan.
4.9 Form of Stock Option Agreement for 1999 Employee
Stock Option Plan.
4.10 Form of Stock Option Agreement for 1999 Stock Plan.
10.32 Form of Change in Control Employment Agreement.
27.1 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K
PathoGenesis filed a report on Form 8-K on April 15, 1999
relating to amendments of its By-Laws and of the Rights Agreement
dated as of June 25, 1997 between PathoGenesis and Harris Trust
and Savings Bank, as Rights Agent.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 16, 1999.
Pathogenesis Corporation
By: /s/ Wilbur H. Gantz
-------------------------------
Wilbur H. Gantz
Chairman and Chief Executive Officer
By: /s/ Alan R. Meyer
-------------------------------
Alan R. Meyer
Executive Vice President and
Chief Financial Officer
12
<PAGE>
EXHIBIT 3.2
PathoGenesis Corporation
BY-LAWS
[as amended through June 3, 1999]
Section 1
Offices
The principal office of the corporation shall be located at its
principal place of business or such other place as the Board of Directors
("Board") may designate. The corporation may have such other offices, either
within or without the State of Delaware, as the Board may designate or as the
business of the corporation may require from time to time.
Section 2
Stockholders
2.1. Annual Meeting. An annual meeting of stockholders for the
--------------
purposes of electing Directors and of transacting such other business as may
properly be brought before it shall be held each year at such date, time, and
place, either within or without the State of Delaware, as may be specified by
the Board. At any time prior to the commencement of the annual meeting, the
Board may postpone the annual meeting for a period of up to 120 days from the
date fixed for such meeting in accordance with this subsection 2.1.
Any nomination of a person to serve on the Board and any proposal of
business to be considered by stockholders at an annual meeting of stockholders
may be made (a) pursuant to the corporation's notice of such meeting, (b) by or
at the direction of the Board or (c) by any stockholder of the corporation who
was a stockholder of record at the time such person gave the notice provided for
in this By-Law, who is entitled to vote at the meeting and who complied with the
notice procedures set forth in this By-Law.
For a nomination or other proposal to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of the foregoing
paragraph of this By-Law, the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to and received at the principal office
of the corporation not less than 60 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of (i) the 60th day prior to such annual meeting or (ii) the 10th day
following the day on which public announcement of the date of such meeting is
first made. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
described in solicitations of
<PAGE>
proxies for election of directors, or is otherwise
required, in each case in accordance with Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
Notwithstanding anything in the second sentence of the third paragraph
of this Section 2.1 to the contrary, in the event that the number of directors
to be elected to the Board of the corporation is increased and there is no
public announcement by the corporation naming all of the nominees for director
or specifying the size of the increased Board at least 70 days prior to the
first anniversary of the preceding year's annual meeting, a stockholder's notice
required by this By-Law shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the corporation
not later than the close of business on the 10th day following the day on which
such public announcement is first made by the corporation.
Only such persons who are nominated in accordance with the procedures
set forth in these By-Laws (including without limitation this Section 2.1 and
Section 2.2) shall be eligible to serve as directors and only such business
shall be conducted at an annual meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
By-Law. The Chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with the procedures set forth in this By-Law and, if any
proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal shall be disregarded.
For purposes of this By-Law and Section 2.2 of these Bylaws, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this By-Law and Section
2.2 of these Bylaws, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this By-Law or Section 2.2. Nothing in this
By-Law shall be deemed to affect any rights of stockholders to request inclusion
of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act.
2.2 Special Meetings; Action by Written Consent of Shareholders.
-----------------------------------------------------------
Subject to the rights of holders of any series of stock having a preference over
the common stock of the corporation as to dividends or upon liquidation
("Preferred Stock") with respect to such series of
2
<PAGE>
Preferred Stock, special meetings of stockholders for any purpose or purposes
may be held at any time only upon call of the Chairman of the Board, if any, the
Chief Executive Officer, the Secretary, or a majority of the Board, at such time
and place either within or without the State of Delaware as may be stated in the
notice. Any action which would be taken at any special meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall (a) be
signed by stockholders who together own of record not less than 66-2/3% of the
outstanding stock of all classes entitled to vote with respect to the subject
matter thereof (as determined in accordance with subsection 2.6.2 hereof) and
(b) be delivered to the corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or an officer or agent of
the corporation having custody of the records of proceedings of meetings of
stockholders. Delivery made to the corporation's registered office shall be by
hand or by certified mail or registered mail, return receipt requested. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless written consents signed by stockholders
entitled to vote with respect to the subject matter thereof are delivered to the
corporation, in the manner required by this section, within sixty days of the
earliest dated consent delivered to the corporation in the manner required by
this section. Any such consent shall be inserted in the minute book as if it
were the minutes of a meeting of the stockholders.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
corporation's notice of meeting. Nominations of persons for election to the
Board may be made at a special meeting of stockholders at which directors are to
be elected pursuant to the corporation's notice of meeting (a) by or at the
direction of the Board or (b) provided that the board has determined that
directors shall be elected at such meeting, by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-Law. In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board, any such stockholder may nominate a
person or persons (as the case may be), for election to such position(s) as
specified in the corporation's notice of meeting, if the stockholder's notice
that would, if such meeting were an annual meeting, be required by the third
paragraph of section 2.1 hereof shall be delivered to the Secretary at the
principal offices of the corporation not earlier than the close of business on
the 90th day prior to such special meeting and not later than the close of
business on the later of the 60th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board to be elected at
such meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
The Chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this By-Law and, if any proposed nomination or business is not in
compliance with this By-Law, to declare that such defective proposal or
nomination shall be disregarded.
In the event of the delivery, in the manner provided by the first
paragraph of this Section 2.2 to the corporation of the requisite written
consent or consents to take corporate
3
<PAGE>
action and/or any related revocation or revocations, the corporation shall
engage nationally recognized independent inspectors of elections for the purpose
of promptly performing a ministerial review of the validity of the consents and
revocations. For the purpose of permitting the inspectors to perform such
review, no action by written consent without a meeting shall be effective until
such date as the independent inspectors certify to the corporation that the
consents delivered to the corporation in accordance with the first paragraph of
this Section 2.2 represent at least the minimum number of votes that would be
necessary to take the corporate action in accordance with the first paragraph of
this Section 2.2. Nothing contained in this paragraph shall in any way be
construed to suggest or imply that the Board or any other stockholder shall not
be entitled to contest the validity of any consent or revocation thereof,
whether before or after such certification by the independent inspectors, or to
take any other action (including, without limitation, the commencement,
prosecution or defense of any litigation with respect thereto, and the seeking
of injunctive relief in such litigation).
Any previously scheduled special meeting of the stockholders may be
postponed, and (unless the Certificate of Incorporation otherwise provides) any
special meeting may be cancelled, by resolution of the Board upon public notice
given prior to the date previously scheduled for the meeting.
2.3. Place of Meeting. All meetings shall be held at the principal
----------------
office of the corporation or at such other place within or without the State of
Delaware designated by the Board, by any persons entitled to call a meeting
hereunder or in a waiver of notice signed by all of the stockholders entitled to
notice of the meeting.
2.4. Notice of Meeting. The corporation shall cause to be delivered
-----------------
to each stockholder entitled to notice of or to vote at an annual or special
meeting either personally or by mail, not less than 10 nor more than 60 days
before the meeting, written notice stating the place, day and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called. If such notice is mailed, it shall be deemed delivered
when deposited in the official government mail properly addressed to the
stockholder at his or her address as it appears on the stock transfer books of
the corporation with postage prepaid.
2.5. Waiver of Notice.
----------------
2.5.1. Whenever any notice is required to be given to any stockholder
under the provisions of these By-Laws, the Certificate of Incorporation or the
General Corporation Law of Delaware, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
2.5.2. The attendance of a stockholder at a meeting shall constitute
a waiver of notice of such meeting, except when a stockholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
2.6. Fixing of Record Date for Determining Stockholders.
--------------------------------------------------
2.6.1. Meetings. For the purpose of determining stockholders
--------
entitled to notice of and to vote at any meeting of stockholders of any
adjournment thereof, the Board may fix a
4
<PAGE>
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board, the record date for
determining stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of and to
vote at the meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
2.6.2. Consent to Corporate Action Without a Meeting. For the
---------------------------------------------
purpose of determining stockholders entitled to consent to corporate action in
writing without a meeting, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board, and which date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board.
Any stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice to the Secretary,
request the Board to fix a record date. The Board shall promptly, but in all
events within 10 days after the date on which such a request is received, adopt
a resolution fixing the record date. If no record date has been fixed by the
Board within 10 days of the date on which such a request is received, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board and prior action by the Board is required by
applicable law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the day on which the Board adopts the resolution taking such prior
action.
2.6.3. Dividends, Distributions and Other Rights. For the purpose of
-----------------------------------------
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board adopts the resolution relating thereto.
2.7. Voting List. At least ten days before each meeting of
-----------
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, shall be made, arranged in alphabetical
order, with the address of and number of shares held by each stockholder. This
list shall be open to examination by any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of ten days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to
5
<PAGE>
be held. This list shall also be produced and kept at such meeting for
inspection by any stockholder who is present.
2.8. Quorum and Adjournment. A majority of the outstanding shares of
----------------------
the corporation entitled to vote, present in person or represented by proxy at
the meeting, shall constitute a quorum at a meeting of the stockholders;
provided, that where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in person
or represented by proxy at the meeting, shall constitute a quorum entitled to
take action with respect to that vote on that matter. The Chairman of the
meeting may adjourn the meeting from time to time, whether or not there is a
quorum. No notice of the time and place of the adjourned meeting need by given,
except as required by law. If a quorum is present or represented at a
reconvened meeting following such an adjournment, any business may be transacted
that might have been transacted at the meeting as originally called. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.9. Manner of Acting. In all matters other than the election of
----------------
Directors, if a quorum is present, the affirmative vote of the majority of the
outstanding shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders,
unless the vote of a greater number is required by these By-Laws, the
Certificate of Incorporation or the General Corporation Law of Delaware. Where
a separate vote by a class or classes is required, if a quorum of such class or
classes is present, the affirmative vote of the majority of outstanding shares
of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class or classes. Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of Directors.
2.10. Proxies. Each stockholder entitled to vote at a meeting of
-------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholders by proxy executed in writing by the stockholder or by his or her
attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. A proxy shall become invalid
three years after the date of its execution, unless otherwise provided in the
proxy. A proxy with respect to a specified meeting shall entitle the holder
thereof to vote at any reconvened meeting following adjournment of such meeting
but shall not be valid after the final adjournment thereof.
2.11. Voting of Shares. Subject to the rights of holders of any
----------------
series of Preferred Stock with respect to such series of Preferred Stock, each
outstanding share entitled to vote with respect to the subject matter of an
issue submitted to a meeting of stockholders shall be entitled to one vote upon
each such issue.
2.12. Voting for Directors. Each stockholder entitled to vote at an
--------------------
election of Directors may vote, in person or by proxy, the number of shares
owned by such stockholder for as many persons as there are Directors to be
elected and for whose election such stockholder has a right to vote.
2.13. Inspectors of Elections; Opening and Closing the Polls. The
------------------------------------------------------
Board by resolution shall appoint one or more inspectors, which inspector or
inspectors may include
6
<PAGE>
individuals who serve the corporation in other capacities, including, without
limitation, as officers, employees, agents or representatives, to act at the
meetings of stockholders and make a written report thereof. One or more persons
may be designated as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate has been appointed to act or is able to act at
a meeting of stockholders, the Chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at a meeting.
Section 3
Board of Directors
3.1. General Powers. The business and affairs of the corporation
--------------
shall be managed by the Board. In addition to the powers and authorities by
these By-Laws expressly conferred upon it, the Board may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these By-Laws required to
be exercised or done by the stockholders.
3.2. Number and Tenure. The Board shall be composed of not less than
-----------------
three nor more than 10 Directors, the specific number to be set by resolution of
the Board or the stockholders. The number of Directors may be changed from time
to time by amendment to these By-Laws, but no decrease in the number of
Directors shall have the effect of shortening the term of any incumbent
Director. The Directors, other than those who may be elected by the holders of
any series of Preferred Stock, will be classified with respect to the time for
which they severally hold office into three classes, as nearly equal in number
as possible, designated Class I, Class II and Class III. The Directors
appointed to Class I will hold office for a term expiring at the annual meeting
of stockholders to be held in 1996; the Directors appointed to Class II will
hold office for a term expiring at the annual meeting of stockholders to be held
in 1997; and the Directors appointed to Class III will hold office for a term
expiring at the annual meeting of stockholders to be held in 1998, with the
members of each class to hold office until their respective successors are
elected and qualified. At each succeeding annual meeting the stockholders of
the corporation, the successors of the class of Directors whose terms expire at
that meeting will be elected by plurality vote of all votes cast at such meeting
to hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election. Election of Directors of
the corporation need not be by written ballot unless requested by the Chairman
or by the holders of a majority of the outstanding stock present in person or
represented by proxy at a meeting of the stockholders at which Directors are to
be elected. Directors need not be stockholders of the corporation or residents
of the State of Delaware.
3.3. Annual and Regular Meetings. An annual Board meeting shall be
---------------------------
held without notice immediately after and at the same place as the annual
meeting of stockholders, or at such other time and place after the annual
meeting of stockholders and not later than the next business day after such
meeting as specified in a notice of such annual board meeting given by
7
<PAGE>
the Chairman of corporation to all nominees for director at least two days
before the meeting. By resolution, the Board or any committee designated by the
Board may specify the time and place either within or without the State of
Delaware for holding regular meetings thereof without other notice than such
resolution.
3.4. Special Meetings. Special meetings of the Board or any
----------------
committee appointed by the Board may be called by or at the request of the
Chairman, the President, the Secretary or, in the case of special Board
meetings, any one Director and, in the case of any special meeting of any
committee appointed by the Board, by the Chairman thereof. The person or
persons authorized to call special meetings may fix any place either within or
without the State of Delaware as the place for holding any special Board or
committee meeting called by them.
3.5. Meetings by Telephone. Members of the Board or any committee
---------------------
designated by the Board may participate in a meeting of such Board or committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
3.6. Notice of Special Meetings. Notice of a special Board or
--------------------------
committee meeting stating the place, day and hour of the meeting shall be given
to a Director in writing or orally by telephone or in person. Neither the
business to be transacted at, nor the purpose of, any special meeting need be
specified in the notice of such meeting.
3.6.1. Personal Delivery. If notice is given by personal delivery,
-----------------
the notice shall be effective if delivered to a Director at least two days
before the meeting.
3.6.2. Delivery by Mail. If notice is delivered by mail, the notice
----------------
shall be deemed effective if deposited in the official government mail properly
addressed to a Director at his or her address shown in the records of the
corporation with postage prepaid at least five days before the meeting.
3.6.3. Delivery by Facsimile. If notice is delivered by facsimile,
---------------------
the notice shall be deemed effective if it is transmitted to a facsimile number
provided by a Director for that purpose from time to time and successful
transmission thereof is confirmed at least three days before the meeting.
3.6.4. Oral Notice. If notice is delivered orally, by telephone or
-----------
in person, the notice shall be deemed effective if personally given to the
Director at least two days before the meeting.
3.7. Waiver of Notice.
----------------
3.7.1. In Writing. Whenever any notice is required to be given to
----------
any Director under the provisions of these By-Laws, the Certificate of
Incorporation or the General Corporation Law of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose
8
<PAGE>
of, any regular or special meeting of the Board or any committee appointed by
the Board need be specified in the waiver of notice of such meeting.
3.7.2. By Attendance. The attendance of a Director at a Board or
-------------
committee meeting shall constitute a waiver of notice of such meeting, except
when a Director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
3.8. Quorum. A majority of the total number of Directors fixed by
------
or in the manner provided in these By-Laws shall constitute a quorum for the
transaction of business at any Board meeting but, if less than a majority are
present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
3.9. Manner of Acting. The act of the majority of the Directors
----------------
present at a Board meeting at which there is a quorum shall be the act of the
Board, unless the vote of a greater number is required by these By-Laws, the
Certificate of Incorporation or the General Corporation Law of Delaware.
3.10. Presumption of Assent. A Director of the corporation present
---------------------
at a Board or committee meeting at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless his or her dissent
is entered in the minutes of the meeting, or unless such Director files a
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof, or forwards such dissent by registered
mail to the Secretary of the corporation immediately after the adjournment of
the meeting. A Director who voted in favor of such action may not dissent.
3.11. Action by Board or Committees Without a Meeting. Any action
-----------------------------------------------
which could be taken at a meeting of the Board or of any committee appointed by
the Board may be taken without a meeting if a written consent setting forth the
action so taken is signed by each of the Directors or by each committee member.
Any such written consent shall be inserted in the minute book as if it were the
minutes of a Board or a committee meeting.
3.12. Resignation. Any Director may resign at any time by
-----------
delivering written notice to the Chairman, the President, the Secretary or the
Board, or to the registered office of the corporation. Any such resignation
shall take effect at the time specified therein, or if the time is not
specified, upon deliver thereof and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.13. Removal. Subject to the rights of the holders of any series of
-------
Preferred Stock with respect to such series of Preferred Stock, any director or
the entire Board may be removed from office at any time, but only for cause.
3.14. Vacancies. Any vacancy occurring on the Board whether by
---------
reason of removal, resignation, death or otherwise shall be filled exclusively
by the affirmative vote of a majority of the remaining Directors though less
than a quorum of the Board. A Director elected to fill a vacancy shall be
elected for the unexpired term of his or her predecessor in office. Any
directorship to be filled by reason of an increase in the number of Directors
may be filled by the board.
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3.15. Committees.
----------
3.15.1. Creation and Authority of Committees. The Board may
------------------------------------
designate one or more committees, each committee to consist of one or more
Directors. The Board may also designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member of
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members present at any meeting and not disqualified
from voting, whether or not such member or members constitute a quorum, may
unanimously appoint another Director to act at the meeting in the place of any
such absent or disqualified member. Any such committee, to the extent provided
by resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
General Corporation Law of Delaware to be submitted to stockholders for action
or (ii) adopting, amending or repealing any By-Laws of the corporation. Each
committee which has been established by the Board pursuant to these By-Laws may
fix its own rules and procedures.
3.15.2. Minutes of Meetings. All committees so appointed shall keep
-------------------
regular minutes of their meetings and shall cause them to be recorded in books
kept for that purpose.
3.15.3. Quorum and Manner of Acting. A majority of the number of
---------------------------
Directors composing any committee of the Board, as established and fixed by
resolution of the Board, shall constitute quorum for the transaction of business
at any meeting of such committee but, if less than a majority are present at a
meeting, a majority of such Directors present may adjourn the meeting from time
to time without further notice. The act of a majority of the members of a
committee present at a meeting at which a quorum is present shall be the act of
such committee.
3.15.4. Resignation. Any member of any committee may resign at any
-----------
time by delivering written notice thereof to the Chairman, the President, the
Secretary, the Board or the Chairman of such committee. Any such resignation
shall take effect at the time specified therein, or if the time is not
specified, upon delivery thereof and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.15.5. Removal. The Board may remove from office any member of any
-------
committee elected or appointed by it or by an Executive Committee, but only by
the affirmative vote of not less than a majority of the number of Directors
fixed by or in the manner provided in these By-Laws.
3.16. Compensation. By Board resolution, Directors and committee
------------
members may be paid their expenses, if any, of attendance at each Board or
committee meeting, or a fixed sum or other compensation for attendance at each
Board or committee meeting, or a stated salary or other compensation as Director
or a committee member, or a combination of the foregoing. No such payment shall
preclude any Director or committee member from serving the corporation in any
other capacity and receiving compensation therefor.
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Section 4
Officers
4.1. Number. The officers of the corporation shall be a Chairman, a
------
President, a Secretary and a Treasurer, each of whom shall be elected by the
Board. One or more Vice Presidents and such other officers and assistant
officers may be elected or appointed by the Board, such officers and assistant
officers to hold office for such period, have such authority and perform such
duties as are provided in these By-Laws or as may be provided by resolution of
the Board. Any officer may be assigned by the Board any additional title that
the Board deems appropriate. The Board may delegate to any officer or agent the
power to appoint any such subordinate officers or agents and to prescribe their
respective terms of office, authority and duties. Any two or more offices may
be held by the same person.
4.2. Election and Term of Office. The officers of the corporation
---------------------------
shall be elected annually by the Board at the annual Board meeting. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as a Board meeting conveniently may be held. Unless an officer
dies, resigns, or is removed from office, he or she shall hold office until the
next annual Board meeting or until his or her successor is elected.
4.3. Resignation. Any officer may resign at any time by delivering
-----------
written notice to the Chairman, the President, a Vice President, the Secretary
or the Board. Any such resignation shall take effect at the time specified
therein, or if the time is not specified, upon delivery thereof and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.4. Removal. Any officer or agent elected or appointed by the Board
-------
may be removed by the Board whenever in its judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the persons so removed.
4.5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification, creation of a new office or any other
cause may be filled by the Board for the unexpired portion of the term, or for a
new term established by the Board.
4.6. Chairman. The Chairman shall be the chief executive officer of
--------
the corporation, shall preside over all meetings of the Board and all meetings
of stockholders, and, subject to the Board's control, shall supervise and
control all of the assets, business and affairs of the corporation. The
Chairman may sign certificates for shares of the corporation, deeds, mortgages,
bonds, contracts or other instruments, except when the signing and execution
thereof have been expressly delegated by the Board of these By-Laws to some
other officer or agent of the corporation or when such documents or instruments
are required by law to be otherwise signed or executed by some other officer or
in some other manner. In general, the Chairman shall perform all duties
incident to the office of the chief executive officer and such other duties as
are prescribed by the Board from time to time.
4.7. President. The President shall be the chief operating officer
---------
of the corporation. In the event of the death of the Chairman or his or her
inability to act, the President shall perform the duties of the Chairman, except
as may be limited by resolution of the Board,
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with all the powers of and subject to all the restrictions upon the Chairman.
The President may sign with the Secretary or any Assistant Secretary
certificates for shares of the corporation. The President shall have, to the
extent authorized by the Chairman or the Board, the same powers as the Chairman
to sign deeds, mortgages, bonds, contracts or other instruments. The President
shall perform such other duties as from time to time may be assigned by the
Chairman or the Board.
4.8. Vice President. In the event of the death of the President or
--------------
his or her inability to act, the Vice President (or if there is more than one
Vice President, the Vice President who was designated by the Board as the
successor to the President, or if no Vice President is so designated, any
Executive Vice President in the order elected, or in the absence thereof any
Senior Vice President in the order elected, or in the absence thereof any other
Vice President in the order elected) shall perform the duties of the President,
except as may be limited by resolution of the Board, with all the powers of and
subject to all the restrictions upon the President. Any Vice President may sign
with the Secretary or any Assistant Secretary certificates for shares of the
corporation. Any Vice President shall have, to the extent authorized by the
Chairman, the President or the Board, the same powers as the President to sign
deeds, mortgages, bonds, contracts or other instruments. Each Vice President
shall perform such other duties as from time to time may be assigned by the
Chairman, the President or the Board.
4.9. Secretary. The Secretary shall: (a) keep minutes of meetings of
---------
the stockholders and the Board in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the provisions of
these By-Laws or as required by law; (c) be custodian of the corporate records
and seal of the corporation; (d) keep registers of the post office address of
each stockholder and Director; (e) have authority to sign certificates for
shares of the corporation; (f) have general charge of the stock transfer books
of the corporation; (g) sign, with the Chairman, the President or other officer
authorized by the Chairman, the President or the Board, deeds, mortgages, bonds,
contracts or other instruments; and (h) in general perform all duties incident
to the office of the Secretary and such other duties as from time to time may be
assigned by the Chairman, the President or the Board. In the absence of the
Secretary, an Assistant Secretary may perform the duties of the Secretary.
4.10. Treasurer. If required by the Board, the Treasurer shall give
---------
a bond for the faithful discharge of his or her duties in such amount and with
such surety or sureties as the Board shall determine. The Treasurer shall have
charge and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in banks, trust companies or other depositories selected in
accordance with the provisions of these By-Laws; have authority to sign
certificates for shares of the corporation; and in general perform all of the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him or her by the Chairman, the President or the Board.
In the absence of the Treasurer, an Assistant Treasurer may perform the duties
of the Treasurer.
4.11. Salaries. The salaries of the officers shall be fixed from
--------
time to time by the Board or by any person or persons to whom the Board has
delegated such authority. No officer shall be prevented from receiving such
salary by reason of the fact that he or she is also a Director of the
corporation.
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Section 5
Contracts, Loans, Checks and Deposits
5.1. Contracts. The Board may authorize any officer or officers, or
---------
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation. Such authority may
be general or confined to specific instances.
5.2. Loans to the Corporation. No loans shall be contracted on
------------------------
behalf of the corporation and no evidences of indebtedness shall be issued in
its name unless authorized by a resolution of the Board. Such authority shall
be confined to specific instances.
5.3. Checks, Drafts, Etc. All checks, drafts or other orders for the
-------------------
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, or agent or agents,
of the corporation and in such manner as is from time to time determined by
resolution of the Board.
5.4. Deposits. All funds of the corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board may select.
Section 6
Certificates for Shares and Their Transfer
6.1. Issuance of Shares. No shares of the corporation shall be
------------------
issued unless authorized by the Board, which authorization shall include the
maximum number of shares to be issued and the consideration to be received for
each share.
6.2. Certificates for Shares. Certificates representing shares of
-----------------------
the corporation shall be signed by the Chairman or the President or the Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary. Any or all the signatures on the certificate may be a
facsimile. All certificates shall include on their face written notice of any
restrictions which may be imposed on the transferability of such shares and
shall be consecutively numbered or otherwise identified.
6.3. Stock Records. The stock transfer books shall be kept at the
-------------
registered office or principal place of business of the corporation or at the
office of the corporation's transfer agent or registrar. The name and address
of each person to whom certificates for shares are issued, together with the
class and number of shares represented by each such certificate and the date of
issue thereof, shall be entered on the stock transfer books of the corporation.
The person in whose name shares stand on the books of the corporation shall be
deemed by the corporation to be the owner thereof for all purposes.
6.4. Transfer of Shares. The transfer of shares of the corporation
------------------
shall be made only on the stock transfer books of the corporation pursuant to
authorization or document of transfer made by the holder of record thereof or by
his or her legal representative, who shall furnish proper evidence of authority
to transfer, or by his or her attorney-in-fact authorized by power of attorney
duly executed and filed with the Secretary of the corporation. All certificates
surrendered to the corporation for transfer shall be canceled and no new
certificate shall be
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issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
6.5. Lost or Destroyed Certificates. In the case of a lost,
------------------------------
destroyed or mutilated certificate, a new certificate may be issued therefor
upon such terms and indemnity to the corporation as the Board may prescribe.
Section 7
Books and Records
The corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its stockholders
and Board and such other records as may be necessary or advisable.
Section 8
Accounting Year
The accounting year of the corporation shall be the calendar year,
provided that if a different accounting year is at any time selected for
purposes of federal income taxes, the accounting year shall be the year so
selected.
Section 9
Seal
The seal of the corporation shall consist of the name of the
corporation, the state of its incorporation and the year of its incorporation.
Section 10
Indemnification
10.1. Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any actual or threatened
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a Director or officer of the corporation or that, being or having been
such a Director or officer or an employee of the corporation, he or she or a
person of whom he or she is the legal representative is or was serving at the
request of the corporation as a Director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as such a Director, officer, employee or agent or in any other
capacity while serving as such a Director, officer, employee or agent, shall be
indemnified and held harmless by the corporation to the full extent permitted by
the General Corporation Law of Delaware, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
permitted prior thereto), or by other applicable law as then in effect, against
all expense, liability and loss (including attorneys' fees,
14
<PAGE>
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an indemnitee
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators; provided,
however, that except as provided in subsection 10.2 of this Section with respect
to proceedings seeking to enforce rights to indemnification, the corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized or ratified by the Board. The right to indemnification conferred
in this subsection 10.1 shall be a contract right and shall include the rights
to be paid by the corporation the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that if the General Corporation Law of Delaware
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a Director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this subsection 10.1 or otherwise.
10.2. Right of Indemnitee to Bring Suit. If a claim under subsection
---------------------------------
10.1 of this Section is not paid in full by the corporation within 30 days after
a written claim has been received by the corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be 20 days, the indemnitee may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit, including attorneys' fees. The indemnitee shall be
presumed to be entitled to indemnification under this Section upon submission of
a written claim (and, in an action brought to enforce a claim for an advancement
of expenses, where the required undertaking, if any is required, has been
tendered to the corporation), and thereafter the corporation shall have the
burden of proof to overcome the presumption that the indemnitee is not so
entitled. Neither the failure of the corporation (including its Board,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances nor an actual determination by the corporation
(including its Board, independent legal counsel or its stockholders) that the
indemnitee is not entitled to indemnification shall be a defense to the suit or
create a presumption that the indemnitee is not so entitled.
10.3. Nonexclusivity of Rights. The rights to indemnification and to
------------------------
the advancement of expenses conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, agreement, vote of stockholders or disinterested Directors, provisions
of the Certificate of Incorporation or By-Laws of the corporation or otherwise.
No repeal or modification of this By-Law shall in any way diminish or adversely
affect the rights of any Director, officer, employee or agent of the corporation
hereunder in respect of any occurrence or matter arising prior to any such
repeal or modification.
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10.4. Insurance, Contracts and Funding. The corporation may maintain
--------------------------------
insurance, at its expense, to protect itself and any Director, officer, employee
or agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law of Delaware. The
corporation, without further stockholder approval, may enter into contracts with
any Director, officer, employee or agent in furtherance of the provisions of
this Section and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure that payment
of such amounts as may be necessary to effect indemnification as provided in
this Section.
10.5. Indemnification of Employees and Agents of the Corporation.
----------------------------------------------------------
The corporation may, by action of the Board, grant rights to indemnification and
advancement of expenses to employees or agents or groups of employees or agents
of the corporation with the same scope and effects as the provisions of this
Section with respect to the indemnification and advancement of expenses of
Directors and officers of the corporation; provided, however, that an
undertaking shall be made by an employee or agent only if required by the Board.
10.6. Persons Serving Other Entities. Any person who is or was a
------------------------------
Director, officer or employee of the corporation who is or was serving as a
Director or officer of another corporation of which a majority of the shares
entitled to vote in the election of its Directors is held by the corporation
shall be deemed to be so serving at the request of the corporation and entitled
to indemnification and advancement of expenses under subsection 10.1 of this
Section.
10.7. Procedures. To obtain indemnification under these By-Laws, a
----------
claimant shall submit to the corporation a written request, including therein or
therewith such documentation and information as is reasonably available to the
claimant and is reasonably necessary to determine whether and to what extent the
claimant is entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this Section 10.7, a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board by a
majority vote of a quorum consisting of Disinterested Directors (as hereinafter
defined), or (ii) if a quorum of the Board consisting of Disinterested Directors
is not obtainable or, even if obtainable, such quorum of Disinterested Directors
so directs, by Independent Counsel in a written opinion to the Board, a copy of
which shall be delivered to the claimant, or (iii) if a quorum of Disinterested
Directors so directs, by the stockholders of the corporation. In the event the
determination of entitlement to indemnification is to be made by Independent
Counsel at the request of the claimant, the Independent Counsel shall be
selected by the Board unless there shall have occurred within two years prior to
the date of the commencement of the action, suit or proceeding for which
indemnification is claimed a "Change in Control" (as defined below), in which
case the Independent Counsel shall be selected by the claimant unless the
claimant shall request that such selection be made by the Board. If it is so
determined that the claimant is entitled to indemnification, payment to the
claimant shall be made within 10 days after such determination.
10.8. Binding Effect of Determination. If a determination shall have
-------------------------------
been made pursuant to Section 10.7 of these By-Laws that the claimant is
entitled to indemnification, the
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corporation shall be bound by such determination in any judicial proceeding
commenced pursuant to Section 10.2 of these By-Laws.
10.9. Preclusion of Invalidity Defense. The corporation shall be
--------------------------------
precluded from asserting in any judicial proceeding commenced pursuant to
Section 10.2 of these By-Laws that the procedures and presumptions of this
Section 10 are not valid, binding and enforceable and shall stipulate in such
proceeding that the corporation is bound by all the provisions of this Section
10.
10.10. Severability. If any provision or provisions of this Section
------------
10 shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (1) the validity, legality and enforceability of the remaining
provisions of this Section 10 (including, without limitation, each portion of
any paragraph of this Section 10 containing any such provision held to be
invalid, illegal or unenforceable, that is not itself held to be invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby;
and (2) to the fullest extent possible, the provisions of this Section 10
(including, without limitation, each such portion of any paragraph of this
Section 10 containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
10.11. Definitions. For purposes of this Section 10:
-----------
"Disinterested Director" means a director of the corporation who is
not and was not a party to the matter in respect of which indemnification is
sought by the claimant.
"Independent Counsel" means a law firm, a member of a law firm, or an
independent practitioner, that is experienced in matters of corporation law and
shall include any person who, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest in representing
either the corporation or the claimant in an action to determine the claimant's
rights under these By-Laws.
"Change in Control" means the first to occur of any of the following
events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (1) the then outstanding shares of common stock of the
corporation (the "Outstanding Common Stock") or (2) the combined
voting power of the then outstanding voting securities of the
corporation entitled to vote generally in the election of
directors (the "Outstanding Voting Securities"); excluding,
however, the following: (1) Any acquisition directly from the
corporation, other than an acquisition by virtue of the exercise
of a conversion privilege unless the security being so converted
was itself acquired directly from the corporation, (2) Any
acquisition by the corporation, (3) Any acquisition by any
employee benefit plan (or related trust) sponsored or maintained
by the corporation or any entity controlled by the corporation,
or (4) Any acquisition pursuant to a transaction which
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complies with clauses (1), (2) and (3) of subsection (iii) of
this definition; or
(ii) A change in the composition of the Board such that the
individuals who, as of the effective date of these amended By-
Laws, constitute the Board (such Board shall be hereinafter
referred to as the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however,
for purposes of this definition any individual who becomes a
member of the Board subsequent to the effective date of these
amended By-Laws, whose election, or nomination for election by
the corporation's stockholders, was approved by a vote of at
least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso) shall be considered
as though such individual were a member of the Incumbent Board;
but, provided further, that any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be
so considered as a member of the Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the
assets of the corporation ("Corporate Transaction"); excluding,
however, such a Corporate Transaction following which (1) all
or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the Outstanding Common
Stock and Outstanding Voting Securities immediately prior to
such Corporate Transaction beneficially own, directly or
indirectly, more than 50% of, respectively, the outstanding
shares of common stock, and the combined voting power of the
then outstanding voting securities entitled to vote generally
in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result
of such transaction owns the corporation or all or
substantially all of the corporation's assets either directly
or through one or more subsidiaries) in substantially the same
proportions, as their ownership immediately prior to such
Corporate Transaction, of the Outstanding Common Stock and
Outstanding Company Securities, as the case may be, (2) no
Person (other than the corporation, or any employee benefit
plan (or related trust) of the corporation or such corporation
resulting from such Corporate Transaction) beneficially owns,
directly or indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation resulting
from such Corporate Transaction or the combined voting power of
the outstanding voting securities of such corporation entitled
to vote generally in the election of directors except to the
extent that such ownership existed prior to the Corporate
Transaction, and (3) individuals who were members of the
Incumbent Board at the time of the execution of the initial
agreement or of the action providing for such Corporate
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Transaction constitute at least a majority of the members of
the board of directors of the corporation resulting from such
Corporate Transaction; or
(iv) The approval by the stockholders of the corporation of a
complete liquidation or dissolution of the corporation.
10.12 Notices. Any notice, request or other communication required
-------
or permitted to be given to the corporation under these By-Laws shall be in
writing and either delivered in person or sent by telecopy, telex, telegram,
overnight mail or courier service, or certified or registered mail, postage
prepaid, return receipt requested, to the Secretary of the corporation and shall
be effective only upon receipt by the Secretary.
Section 11
Amendments
These By-Laws may be amended or repealed and new By-Laws may be
adopted by the Board. The stockholders may also amend and repeal these By-Laws
or adopt new By-Laws. All By-Laws made by the Board may be amended or repealed
by the stockholders. Notwithstanding the foregoing and anything contained in
the Certificate of Incorporation of the corporation or these By-Laws to the
contrary, Sections 2.2, 3.2, 3.14 and this Section 11 of the By-Laws of the
corporation may not be amended or repealed by the stockholders, and no provision
inconsistent therewith may be adopted by the stockholders, without the
affirmative vote of the holders of at least 66-2/3% of the outstanding stock of
all classes entitled to vote thereon.
19
<PAGE>
EXHIBIT 4.8
PathoGenesis Corporation
201 Elliott Avenue West, #150
Seattle, WA 98119
1997 STOCK OPTION PLAN
[INCENTIVE] [NON-QUALIFIED] STOCK OPTION AGREEMENT
((grantdate))
TO: ((FirstName)) ((LastName))
We are pleased to inform you that you have been awarded a stock option (the
"Option") under the PathoGenesis Corporation 1997 Stock Option Plan (the
"Plan"). The Option is [an incentive] [a non-qualified] stock option for the
purchase of ((sharenum)) shares of PathoGenesis common stock at an exercise
price of $((shareprice)) per share, subject to the vesting provisions set forth
herein and in the Plan. A copy of the Plan is attached, and the provisions
thereof, including, without limitation, those relating to withholding taxes, are
incorporated into this Agreement by reference. The Option will become effective
when you sign and return to the Company the Acceptance and Acknowledgment
attached to this Agreement.
The terms of the Option are as set forth in the Plan and in this Agreement.
Certain of the terms set forth in the Plan are summarized below; however,
reference should be made to the Plan for the complete terms. For purposes of
the sections under the headings "Forfeiture; Recapture of Option Gain" and
"Termination," the term "Company" shall mean PathoGenesis Corporation or any
related corporation as defined in the Plan.
Term. The Option shall terminate ten years from date of grant, unless
sooner terminated.
Date of Grant. The date of grant of the option is ((grantdate)).
Vesting. Except as otherwise provided in this Agreement, the Option will
vest according to the following schedule:
<TABLE>
<CAPTION>
Portion of Total Option
Vesting Date That is Vested
-----------------------------------------------------------------
<S> <C>
first anniversary of date of grant 25%
second anniversary of date of grant 50%
third anniversary of date of grant 75%
fourth anniversary of date of grant 100%
</TABLE>
Change in Control. Notwithstanding the vesting schedule established under
"Vesting" above, the Option shall become fully vested and immediately
exercisable upon a "Change in Control," and shall remain exercisable until its
expiration, cancellation or termination.
(1) "Change in Control" means the first to occur of any of the following
events:
<PAGE>
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of PathoGenesis (the "Outstanding Common Stock") or (2) the
combined voting power of the then outstanding voting securities of
PathoGenesis entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following: (1)
Any acquisition directly from PathoGenesis, other than an acquisition by
virtue of the exercise of a conversion privilege unless the security being
so converted was itself acquired directly from PathoGenesis, (2) Any
acquisition by PathoGenesis, (3) Any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by PathoGenesis or any
entity controlled by PathoGenesis, or (4) Any acquisition pursuant to a
transaction which complies with clauses (1), (2) and (3) of subsection
(iii) of this definition; or
(ii) A change in the composition of the Board such that the
individuals who, as of the date hereof, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however,
for purposes of this definition any individual who becomes a member of the
Board subsequent to the effective date of the Plan, whose election, or
nomination for election by PathoGenesis' shareholders, was approved by a
vote of at least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided further,
that any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board shall not be so considered as
a member of the Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
PathoGenesis or the acquisition by PathoGenesis of assets or stock of
another entity ("Corporate Transaction"); excluding, however, such a
Corporate Transaction following which (1) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of
the Outstanding Common Stock and Outstanding Voting Securities immediately
prior to such Corporate Transaction beneficially own, directly or
indirectly, more than 50% of, respectively, the outstanding shares of
common stock, and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns PathoGenesis or all or substantially all of PathoGenesis'
assets either directly or through one or more subsidiaries) in
substantially the same proportions, as their ownership immediately prior to
such Corporate Transaction, of the Outstanding Common Stock and Outstanding
Voting Securities, as the case may be, (2) no Person (other than
PathoGenesis, or any employee benefit plan (or related trust) of
PathoGenesis or such corporation resulting from such Corporate Transaction)
beneficially owns, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation resulting from
such Corporate Transaction or the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally in the
election of directors except to the extent that such
<PAGE>
ownership existed prior to the Corporate Transaction, and (3) individuals
who were members of the Incumbent Board at the time of the execution of the
initial agreement or of the Board action providing for such Corporate
Transaction constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction; or
(iv) The approval by the shareholders of the PathoGenesis of a
complete liquidation or dissolution of PathoGenesis.
Exercise. During your lifetime only you may exercise the Option. The Plan
also provides for exercise of the Option by the personal representative of your
estate or the beneficiary thereof following your death, to the extent and during
the same period that you could have exercised the Option, determined on the date
of your death, except to the extent otherwise provided in this Agreement or the
Plan. The determination in good faith by the Plan Administrator of the person
entitled to exercise the Option following your death shall be final and binding
on all persons claiming any interest in the Option.
The vested portion of the Option may be exercised, in whole or in part, but
not as to fractional shares, during the term of the Option.
Forfeiture; Recapture of Option Gain. If you engage in any "Detrimental
Activity", as defined below (a "Forfeiture Event"), during the one-year period
prior to or the one-year period after any exercise of the Option (or any part
thereof), (a) any unexercised portion of the Option shall terminate as of the
date on which the Plan Administrator determines that a Forfeiture Event has
occurred, and (b) the Plan Administrator shall have the right, within two years
after the date on which the Plan Administrator determines that a Forfeiture
Event has occurred, in addition to any other rights or remedies that the Company
may have, to require you to pay to the Company the amount of any "Gain", as
defined below, on such exercise. Such payments shall be in such manner and on
such terms and conditions as may be required by the Plan Administrator, and the
Company shall be entitled to set-off the amount of any such gain against any
amount owed to you by the Company.
"Detrimental Activity" shall mean (i) the rendering of services for any
entity, or engaging directly or indirectly in any business, that is or becomes
competitive with the Company, or (ii) your breach of the confidentiality
agreement between the Company and you; provided, however, the foregoing clause
(i) shall apply (A) if on the date of grant you are an employee of the Company,
at any time before that date you were an employee of the Company, or on the date
of grant you are providing services on behalf of the Company with a view to
becoming an employee of the Company in the future and (B) to the extent
permitted by local employment law if you reside outside the United States.
"Gain" shall mean the product of (x) the excess of the fair market value per
share of common stock on the date of such exercise over the option exercise
price and (y) the number of shares you purchased upon such exercise, regardless
of whether you have sold shares of common stock acquired in such exercise.
[Notwithstanding the foregoing, from and after a Change in Control, no
determination may be made that any Forfeiture Event has occurred.]
You acknowledge and agree that the provisions relating to forfeiture and
recapture of option Gain are in addition to, and not in lieu of, any non-
solicitation, confidentiality and/or non-competition obligations and other
obligations that you may have, or any rights or remedies the Company may have,
whether by agreement, fiduciary obligation or otherwise and that the grant
<PAGE>
and exercisability of the Option are expressly made contingent on the absence of
any Forfeiture Event as set forth in this Agreement.
Notices. All notices sent in connection with the Option shall be in
writing and, if to PathoGenesis, shall be delivered personally to the Stock
Option Administrator of PathoGenesis or mailed to its principal office,
addressed to the attention of the Stock Option Administrator and, if to you,
shall be delivered personally or mailed to you at the address noted on the
attached Acceptance and Acknowledgment. Such addresses may be changed at any
time by notice from one party to the other.
Payment for Shares upon Exercise. You may exercise any vested portion of
the Option by the delivery of a properly executed notice of exercise, which is
available from the Stock Option Administrator, together with payment in full of
the exercise price:
(a) in cash, by personal check (unless, at the time of exercise, the
Plan Administrator determines otherwise) or bank certified or cashier's
check; or
(b) unless the Plan Administrator in its sole discretion determines
otherwise, by delivering shares of the PathoGenesis common stock held by
you (which, if not purchased on the open market, you must have held for at
least six months) having a fair market value at the time of exercise, as
determined in good faith by the Plan Administrator, equal to the exercise
price; or
(c) by giving instructions to PathoGenesis to withhold from the
shares that would otherwise be issued to you upon exercise that number of
shares having a fair market value equal to the Option exercise price; or
(d) by having the designated broker confirm receipt of your
irrevocable instructions to such broker to promptly deliver to PathoGenesis
the amount of sale or loan proceeds to pay the exercise price.
After receiving your notice of exercise, payment of the exercise and any
other required document, PathoGenesis will deliver to you a certificate or
certificates for the shares being purchased. However, PathoGenesis will not
issue or transfer shares of common stock upon your exercise of the Option until
you have paid, or have made arrangement satisfactory to PathoGenesis for the
payment of, any taxes that PathoGenesis is obligated to collect as a result of
the issue or transfer of shares of common stock upon exercise; provided,
however, if PathoGenesis withholds shares of common stock to satisfy the tax
withholding obligations, the amount withheld shall not exceed the amount of tax
computed at the minimum statutory withholding rate.
Termination.
(1) Termination Other Than for Cause, Retirement, Death or Total
Disability. If your employment with the Company or your engagement as a
consultant to the Company is terminated for any reason other than Cause,
Retirement (as defined below), death or total disability, unless otherwise
provided in subsection (5) below, any unvested portion of the Option will
terminate on the date of termination and the vested portion of the Option,
unless it sooner terminates or expires under this Agreement, will terminate
three months after the date of termination.
<PAGE>
(2) Termination for Death or Total Disability. If your employment
with the Company or your engagement as a consultant to the Company is
terminated by reason of death or total disability (or if your employment or
engagement is terminated by reason of total disability and you die within
one year after termination), then, (a) the portion of the Option that would
have become exercisable on the immediately following Vesting Date shall
become vested and immediately exercisable on the date of such termination,
(b) any unvested portion of the Option will terminate on the date of such
termination of employment, and (c) the vested portion of the Option
(including, if applicable, that portion that becomes exercisable pursuant
to the foregoing clause(a)), unless the Option sooner terminates or
expires, will terminate on the date one year after the date of such
termination of employment (or one year after your later death within the
one-year period after termination by reason of total disability).
(3) Termination Due to Retirement. If you retire as an employee
after attaining 65 years of age and completing at least five years of
consecutive service as an employee of the Company ("Retirement"), (a) the
portion of the Option that would have become exercisable on the immediately
following Vesting Date shall become vested and immediately exercisable on
the date of such termination, (b) any unvested portion of the Option will
terminate on the date of such Retirement, and (c) the vested portion of the
Option (including, if applicable, that portion that becomes exercisable
pursuant to the foregoing clause (a)), unless the Option sooner terminates
or expires, will terminate on the third anniversary of the date of your
Retirement[; provided, however, that to the extent not exercised within the
period required by Section 422(a)(2) of the Code, the Option or the
relevant portion thereof (unless exercised by your estate) shall cease to
qualify as an incentive stock option and shall be treated as a non-
qualified stock option].
(4) Termination for Cause. If your employment with the Company or
your engagement as a consultant to the Company is terminated for Cause (as
defined below), the Option shall terminate as of the first discovery by the
Company of any reason for termination for Cause, provided that, if you are
an employee, upon a termination for Cause following a Change in Control,
the Option shall not terminate until your employment actually terminates.
"Cause" shall mean dishonesty, disloyalty, insubordination, conviction or
confession of a felony, fraud, willful misconduct or breach of your
confidentiality agreement with the Company. Determination of Cause shall be
made by the Plan Administrator in its sole and absolute discretion.
(5) Change in Status upon Termination. If (a) your employment is
terminated and concurrently the Company engages you as a consultant to the
Company or (b) your engagement as a consultant to the Company is terminated
and concurrently the Company hires you as an employee, the Plan
Administrator at its sole discretion may determine that the Option shall
continue and shall terminate upon termination of your new status in
accordance with the applicable provisions of subsections (1) to (4) above.
Transfer of Option. The Option is not transferable, assignable or payable
to, or exercisable by anyone other than you, except (a) by will or pursuant to
the applicable laws of descent and distribution[, or (b) as permitted by the
Plan Administrator, subject to such terms and conditions as the Plan
Administrator may in its sole discretion require, which shall include
transferree's agreement to be bound by all the terms and conditions of the Plan
and this Agreement].
<PAGE>
Securities Regulation. YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8
OF THE PLAN, WHICH DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL
AND STATE SECURITIES LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE
EXERCISED AND BEFORE PATHOGENESIS CAN ISSUE ANY SHARES TO YOU. PATHOGENESIS HAS
NO OBLIGATION TO REGISTER THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF
YOUR OPTION, AND IF SUCH SHARES ARE NOT REGISTERED, YOU WILL NOT BE ABLE TO
EXERCISE THE OPTION UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE
PRESENT TIME, EXEMPTIONS FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES
LAWS ARE VERY LIMITED AND MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF
THE OPTION. CONSEQUENTLY, YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION
AND TO RECEIVE SHARES UPON SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH
YOUR TAX ADVISOR CONCERNING THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING
YOUR OPTIONS OR HOLDING OR SELLING THE SHARES UNDERLYING SUCH OPTIONS.
[Acknowledgment. You acknowledge that accelerated vesting of all or a part
of the Option may cause all or a portion of the Option to cease to qualify as
incentive stock option.]
Authority of Plan Administrator. All decisions or interpretations made by
the Plan Administrator with regard to any question arising hereunder or under
the Plan shall be binding and conclusive upon you and the PathoGenesis.
Binding Effect. This Agreement shall bind and inure to the benefit of the
parties hereto and the successors and assigns of PathoGenesis and, to the extent
provided in the Plan, your executors, administrators, legatees and heirs.
[Conflicts. In the event of a conflict between the provisions of this
Agreement, or the Plan, and the terms of a change in control employment
agreement between PathoGenesis and you (the "Change in Control Agreement") with
respect to a payment or benefit to be made or provided to you under this
Agreement, whichever if the provisions of this Agreement, or the Plan, or the
Change in Control Agreement that are most favorable to you will control.]
Acceptance and Acknowledgment. Please execute the Acceptance and
Acknowledgment attached to the enclosed copy of this Agreement and return it to
PathoGenesis.
Very truly yours,
PATHOGENESIS CORPORATION
By: /s/ Wilbur H. Gantz
-------------------------------------
Wilbur H. Gantz
Chairman and Chief Executive Officer
<PAGE>
PathoGenesis Corporation
201 Elliott Avenue West, #150
Seattle, WA 98119
ACCEPTANCE AND ACKNOWLEDGMENT
of
[INCENTIVE] [NON-QUALIFIED] STOCK OPTION
INSTRUCTIONS: Please complete the information requested below. After signing
as indicated, detach this page and return it to PathoGenesis, to the attention
of the Stock Option Administrator.
I, a resident of the State of ((State)), accept the [incentive] [non-
qualified] stock option described in the [Incentive] [Non-qualified] Stock
Option Agreement dated ((grantdate)) and in the PathoGenesis Corporation 1997
Stock Option Plan and acknowledge receipt of a copy of the Agreement and the
Plan. I have read and understand all the provisions and limitations of the
Plan, particularly those relating to incentive stock options and the provisions
of Section 8 of the Plan relating to securities regulation. I have read and
understand all the provisions and limitations of the Agreement, including, but
not limited to, those under the headings "Forfeiture; Recapture of Option Gain"
(including the definition of "Detrimental Activity") and "Change in Control".
Date:_____________________ Name: ((FirstName)) ((LastName))
-----------------------------
________________________________
Social Security Number
________________________________ __________________________________
Address Signature
<PAGE>
EXHIBIT 4.9
PathoGenesis Corporation
201 Elliott Avenue West, #150
Seattle, WA 98119
1999 EMPLOYEE STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
((grantdate))
TO: ((FirstName)) ((LastName))
We are pleased to inform you that PathoGenesis Corporation ("PathoGenesis")
has awarded a stock option under the PathoGenesis Corporation 1999 Stock Plan
(the "Plan"). Capitalized terms are defined in Section 14 below or, if not so
defined, have the definitions set forth in the Plan.
PathoGenesis and you agree as follows:
1. Grant. PathoGenesis hereby grants to you an option under the Plan
(the "Option") to purchase ((sharenum)) shares of common stock, $.001 par value
per share, of PathoGenesis (the "Common Stock"), at a purchase price per share
of $((shareprice)) (the "option exercise price"), and you hereby accept the
Option, upon the terms and conditions set forth in this Agreement and the Plan.
The Option is not intended to be treated as an Incentive Stock Option.
2. Exercisability. Except as provided in Sections 7 and 8 below, the
Option shall vest and be exercisable as to one-quarter of the shares covered by
the Option on the first anniversary of the date hereof, with an additional one-
quarter of the Option becoming cumulatively exercisable on each of the second,
third and fourth anniversaries of the date hereof (each such anniversary date, a
"Vesting Date"). Unless sooner terminated, the Option will expire if and to the
extent it is not exercised within ten years from the date hereof.
3. Limitation on Exercise of Option. If you are granted incentive stock
options (whether under this Agreement or any other incentive stock option
agreement) and the aggregate Fair Market Value (determined as of the respective
dates of grant of such options) of the Common Stock with respect to such options
are first exercisable in any calendar year exceeds $100,000, the most recently
granted options shall be treated as nonqualified stock options to the extent of
the excess. In addition, in the case of simultaneously granted options,
PathoGenesis may, in the manner and to the extent permitted by law, designate
which shares are to be treated as stock acquired pursuant to the exercise of an
incentive stock option.
4. Exercise. You may exercise the Option for all or any portion of the
shares as to which it is exercisable (provided that only whole shares of Common
Stock will be issued pursuant to any partial exercise) by delivering written
notice of exercise to PathoGenesis specifying the number of shares of Common
Stock to be purchased. The form of notice of exercise is available from
PathoGenesis' Stock Option Administrator. Such notice shall be accompanied by
payment in full of the option exercise price (a) in cash, (b) to the extent
permitted by law and as permitted by the Committee from time to time, by other
means, including (i) tendering Common Stock (which, if not purchased on the open
market, Optionee must have held for at least six months, and for which you have
good title, free and clear of any
<PAGE>
lien or encumbrance), based on the Fair Market Value per share of Common Stock
on the date the Option is exercised, (ii) authorizing a third party to sell
shares (or a sufficient portion thereof) acquired upon exercise of the Option
and to remit to PathoGenesis a sufficient portion of the sale proceeds to pay
for all the shares acquired through such exercise and any tax withholding
obligations resulting from such exercise, or (iii) any combination of (i) and
(ii), or (c) any combination of (a) and (b). No Common Stock shall be issued on
exercise of the Option until payment therefor, as provided herein, has been
made.
You agree to pay to PathoGenesis, or make arrangements satisfactory to
PathoGenesis regarding payment of, any federal, state or local taxes of any kind
required by law to be withheld as a result of your exercise of the Option (or
any part thereof). Whenever cash is to be paid pursuant to an Option,
PathoGenesis shall have the right to deduct therefrom an amount sufficient to
satisfy any required federal, state and local withholding tax requirements
related thereto. Whenever shares of Common Stock are to be delivered pursuant
to an Option, PathoGenesis shall have the right to require you to remit to the
Company in cash an amount sufficient to satisfy any required federal, state and
local withholding tax requirements related thereto. The Committee may require
you to, or with the approval of the Committee you may, satisfy the foregoing
requirement by electing to have PathoGenesis withhold from delivery shares of
Common Stock having a value equal to the amount of tax to be withheld, which
shall not exceed the amount computed at the minimum statutory withholding rate.
Such shares shall be valued at the Fair Market Value per share of Common Stock
on the date as of which the amount of tax to be withheld is determined.
Fractional share amounts shall be settled in cash. Such a withholding election
may be made with respect to all or any portion of the shares of Common Stock to
be delivered pursuant to an Option.
5. Rights as Shareholder. You shall have no rights as a shareholder with
respect to any shares covered by the option until a stock certificate for such
shares is issued to you. Except as otherwise provided herein, no adjustment
shall be made for dividends or distributions of other rights for which the
record date is prior to the date such stock certificate is issued.
6. Non-Transferability. The Option is not transferable, assignable or
payable to anyone other than you, except (a) by will or pursuant to the
applicable laws of descent and distribution or (b) as permitted by the
Committee, subject to such terms and conditions as the Committee may in its sole
discretion require, which shall include transferree's agreement to be bound by
all the terms and conditions of the Plan and this Agreement. Following your
death, the Option may be exercised by your estate, or the person entitled to the
Option under the laws of descent and distribution, to the extent and during the
same period that you could have exercised the Option, determined on the date of
your death, except to the extent otherwise provided in this Agreement or the
Plan. The determination in good faith by the Committee of the person entitled
to exercise the Option following your death shall be final and binding on all
persons claiming any interest in the Option.
7. Termination of Service.
7.1 Termination Other Than for Cause, Retirement, Death or Permanent
Disability. If you cease to be employed by or to perform services for the
Company for any reason other than Cause, Retirement (as defined in Section 7.3),
death or Permanent Disability, unless otherwise provided in Section 7.5 below,
any unvested portion of the Option will terminate on the date of termination and
the vested portion of the Option, unless the Option sooner terminates or expires
under the terms hereof, will terminate on the date three months after the date
of termination of your employment or service.
2
<PAGE>
7.2 Termination for Death or Permanent Disability. If your employment or
service is terminated by reason of death or Permanent Disability (or if your
employment or service is terminated by reason of Permanent Disability and you
die within one year after such termination of employment or service), then, (a)
the portion of the Option that would have become exercisable on the immediately
following Vesting Date shall become vested and immediately exercisable on the
date of such termination, (b) any unvested portion of the Option will terminate
on the date of such termination of employment or service, and (c) the vested
portion of the Option (including, if applicable, that portion that becomes
exercisable pursuant to the foregoing clause(a)) unless sooner terminated under
the terms hereof, will terminate on the date one year after the date of such
termination of employment or service (or one year after your later death within
the one-year period after termination by reason of Permanent Disability).
7.3 Termination Due to Retirement. If you retire as an employee after
attaining 65 years of age and completing at least five years of consecutive
service as an employee of the Company ("Retirement"), (a) the portion of the
Option that would have become exercisable on the immediately following Vesting
Date shall become vested and immediately exercisable on the date of such
termination, (b) any unvested portion of the Option will terminate on the date
of such Retirement, and (c) the vested portion of the Option (including, if
applicable, that portion that becomes exercisable pursuant to the foregoing
clause (a)) may be exercised by you, unless the Option sooner terminates or
expires, at any time prior to the third anniversary of the date of your
Retirement.
7.4 Termination for Cause. If your employment or service is terminated
for Cause, the Option shall terminate as of the first discovery by the Company
of any reason for termination for Cause; provided that, upon a termination of
employment for Cause following a Change in Control, the Option shall not
terminate until your employment actually terminates.
7.5 Change in Status upon Termination. If (a) your employment is
terminated and concurrently the Company engages you as a consultant to the
Company or (b) your engagement as a consultant to the Company is terminated and
concurrently the Company hires you as an employee, the Committee at its sole
discretion may determine that the Option shall continue and shall terminate upon
termination of your new status in accordance with the applicable provisions of
Sections 7.1 to 7.4 above.
8. Change in Control. Upon the occurrence of a Change in Control, the
Option shall become fully vested and immediately exercisable and shall remain
exercisable until the earlier of its expiration, cancellation, or termination in
accordance with Section 7 of this Agreement.
9. Forfeiture and Recapture of Option Gain. If you engage in any
"Detrimental Activity," as defined below (a "Forfeiture Event"), during the one-
year period prior to or the one-year period after any exercise of the Option (or
any part thereof), (a) any unexercised portion of the Option shall terminate as
of the date on which the Committee determines that a Forfeiture Event has
occurred, and (b) the Committee shall have the right, within two years after the
date on which the Committee determines that a Forfeiture Event has occurred, to
require you to pay to the Company the amount of any "Gain" (as defined below) on
such exercise. Such payments shall be in such manner and on such terms and
conditions as may be required by the Committee, and the Company shall be
entitled to set-off the amount of any such Gain against any amount owed to you
by the Company.
3
<PAGE>
"Detrimental Activity" shall mean (i) the rendering of services for any
entity, or engaging directly or indirectly in any business, that is or becomes
competitive with the Company, or (ii) your breach of the confidentiality
agreement between the Company and you; provided, however, the foregoing clause
(i) shall apply (A) if on the date of grant you are an employee of the Company,
at any time before that date you were an employee of the Company, or on the date
of grant you are providing services on behalf of the Company with a view to
becoming an employee of the Company in the future and (B) to the extent
permitted by local employment law if you reside outside the United States.
"Gain" shall mean the product of (x) the excess of the Fair Market Value per
share of Common Stock on the date of such exercise over the option exercise
price and (y) the number of shares you purchased upon such exercise, regardless
of whether you have sold shares of Common Stock acquired in such exercise.
[Notwithstanding the foregoing, from and after a Change in Control, no
determination may be made that any Forfeiture Event has occurred.]
You acknowledge and agree that the provisions of this Section 9 are in
addition to, and not in lieu of, any non-solicitation, confidentiality and/or
non-competition obligations and other obligations that you may have, or any
rights or remedies the Company may have, whether by agreement, fiduciary
obligation or otherwise and that the grant and exercisability of the Option are
expressly made contingent on the absence of any Forfeiture Event as set forth in
this Section 9.
10. Securities Laws Compliance.
10.1 Registration Prior to Exercise. Notwithstanding anything herein to
the contrary, the Option may not be exercised unless and until a registration
statement on an appropriate form covering the shares of Common Stock issuable
upon exercise of the Option granted hereunder has been filed with the Securities
and Exchange Commission and has become effective under the Securities Act of
1933, and such shares are listed on a national securities exchange or the Nasdaq
Stock Market. Nothing in this agreement shall be deemed to obligate the Company
to effect any such registration. In addition, the Option shall in no event be
exercisable and shares shall not be issued hereunder if, in the opinion of
counsel to the Company, such exercise and/or issuance may result in a violation
of federal or state securities laws.
10.2 Investment Representation. If, at the time of exercise of the
Option, there does not exist a registration statement under the Securities Act
of 1933, which registration statement shall have become effective and shall
include a resale prospectus which is current with respect to shares subject to
the Option, you hereby covenant and agree with PathoGenesis that (i) you are
purchasing the shares for your own account and not with a view to the resale or
distribution thereof, (ii) any subsequent offer for sale or sale of any such
shares shall be made either pursuant to (x) a registration statement under that
Act, which registration statement shall have become effective and shall be
current with respect to the shares being offered and sold, or (y) an exemption
from the registration statement requirements of that Act, but in claiming such
exemption, you shall, prior to any offer for sale or sale of such shares, obtain
a favorable written opinion from counsel for or reasonably approved by
PathoGenesis as to the applicability of such exemption, and (iii) the
certificate evidencing such shares shall bear a legend to the effect of the
foregoing.
4
<PAGE>
11. No Employment or Service Rights. Nothing in this agreement shall give
you any right to continue in the employ or service of the Company or to
interfere with the right of the Company to terminate your employment or service.
12. Administration. The Committee will have full power and authority to
interpret and apply the provisions of this Agreement and act on behalf of
PathoGenesis and the Board in connection with this Agreement, and the decision
of the Committee as to any matter arising under this Agreement shall be binding
and conclusive as to all persons.
13. Disqualifying Disposition. You shall notify PathoGenesis of any
disposition of shares of Common Stock issued pursuant to the exercise of the
Option under the circumstances described in Section 421(b) of the Code (relating
to certain disqualifying dispositions), within ten days after disposition.
14. Certain Definitions. As used herein:
(a) "Affiliated Company" shall mean a corporation, limited liability
company, partnership or other business entity controlled by, controlling or
under common control with PathoGenesis.
(b) "Board" shall mean the board of directors of PathoGenesis.
(c) "Cause" shall mean dishonesty, disloyalty, insubordination,
conviction or confession of a felony, fraud, willful misconduct or breach of
your confidentiality agreement with the Company. Determination of Cause shall be
made by the Committee in its sole and absolute discretion.
(d) "Change in Control" means the first to occur of any of the following
events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of PathoGenesis (the "Outstanding Common Stock") or (2) the
combined voting power of the then outstanding voting securities of
PathoGenesis entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following: (1)
Any acquisition directly from PathoGenesis, other than an acquisition by
virtue of the exercise of a conversion privilege unless the security being
so converted was itself acquired directly from PathoGenesis, (2) Any
acquisition by PathoGenesis, (3) Any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by PathoGenesis or any
entity controlled by PathoGenesis, or (4) Any acquisition pursuant to a
transaction which complies with clauses (1), (2) and (3) of subsection
(iii) of this definition; or
(ii) A change in the composition of the Board such that the
individuals who, as of the effective date of the Plan, constitute the Board
(such Board shall be hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this definition any individual who
becomes a member of the Board subsequent to the effective date of the Plan,
whose election, or nomination for election by PathoGenesis' shareholders,
was approved by a vote of at least a majority of those individuals who are
members of the
5
<PAGE>
Board and who were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided further,
that any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board shall not be so considered as
a member of the Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
PathoGenesis or the acquisition by PathoGenesis of assets or stock of
another entity ("Corporate Transaction"); excluding, however, such a
Corporate Transaction following which (1) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of
the Outstanding Common Stock and Outstanding Voting Securities immediately
prior to such Corporate Transaction beneficially own, directly or
indirectly, more than 50% of, respectively, the outstanding shares of
common stock, and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns PathoGenesis or all or substantially all of PathoGenesis'
assets either directly or through one or more subsidiaries) in
substantially the same proportions, as their ownership immediately prior to
such Corporate Transaction, of the Outstanding Common Stock and Outstanding
Voting Securities, as the case may be, (2) no Person (other than
PathoGenesis, or any employee benefit plan (or related trust) of
PathoGenesis or such corporation resulting from such Corporate Transaction)
beneficially owns, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation resulting from
such Corporate Transaction or the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally in the
election of directors except to the extent that such ownership existed
prior to the Corporate Transaction, and (3) individuals who were members of
the Incumbent Board at the time of the execution of the initial agreement
or of the Board action providing for such Corporate Transaction constitute
at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(iv) The approval by the shareholders of PathoGenesis of a complete
liquidation or dissolution of PathoGenesis.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(f) "Committee" shall mean the committee of the Board appointed by the
Board to administer the Plan.
(g) "Company" shall mean PathoGenesis Corporation and shall include (1)
any "parent" or "subsidiary" (as such terms are defined in Section 424 of the
Code) of PathoGenesis and (2) any other entity in which PathoGenesis has a
significant equity or other interest as determined by the Committee.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
6
<PAGE>
(i) "Incentive Stock Option" shall mean an option that is an "incentive
stock option" within the meaning of Section 422 of the Code, or any successor
provision.
(j) "Non-Qualified Stock Option" shall mean an option other than an
Incentive Stock Option.
(k) "Option" shall mean the option to purchase shares of Common Stock
granted pursuant to Section 1 above.
(l) "Permanent Disability" shall mean your inability to perform a
substantial portion of your duties by reason of any medically determinable
physical or mental impairment which can be expected to be of long-continued and
indefinite duration. Permanent Disability shall be determined solely by the
Committee upon medical evidence from a physician selected by the Committee. A
determination of Permanent Disability by the Committee hereunder shall not be
construed to be an admission of disability in regard to any other claim of
disability brought by you against the Company.
15. Miscellaneous.
15.1 Plan[;Conflict]. The Option and all of your rights thereunder are
subject to, and you agree to be bound by, all of the applicable terms and
conditions of the provisions of the Plan, incorporated herein by this reference.
You acknowledge receipt of a copy of the Plan. The Committee shall have fully
authority and discretion (subject only to the express provisions of the Plan) to
decide all matters relating to the administration and interpretation of the Plan
and this Agreement.
[In the event of a conflict between the provisions of this Agreement, or
the Plan, and the terms of a change in control employment agreement between
PathoGenesis and you (the "Change in Control Agreement") with respect to a
payment or benefit to be made or provided to you under this Agreement, whichever
if the provisions of this Agreement, or the Plan, or the Change in Control
Agreement that are most favorable to you will control.]
15.2 Notices. Any notice to be given under this Agreement shall be in
writing and addressed to PathoGenesis at its principal office located at 201
Elliott Avenue West, Seattle, Washington 98119, to the attention of Vice
President, Human Resources and to you at your address given beneath your
signature hereto, or at such other address as either party may hereafter
designate in writing to the other.
15.3 Binding Effects. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
15.4 Severability. The various provisions of this Agreement are severable
in their entirety. Any determination of invalidity or unenforceability in any
one provision shall have no effect on the continuing full and effect of the
remaining provisions.
15.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
Acceptance and Acknowledgment. Please execute the Acceptance and
Acknowledgment attached to the enclosed copy of this Agreement and return it to
PathoGenesis.
7
<PAGE>
Very truly yours,
PATHOGENESIS CORPORATION
By:____________________________________
Wilbur H. Gantz
Chairman and Chief Executive Officer
8
<PAGE>
PathoGenesis Corporation
201 Elliott Avenue West, #150
Seattle, WA 98119
ACCEPTANCE AND ACKNOWLEDGEMENT
of
NON-QUALIFIED STOCK OPTION
INSTRUCTIONS: Please complete the information requested below. After signing
as indicated, detach this page and return it to PathoGenesis, to the attention
of the Stock Option Administrator.
I accept the Non-Qualified Stock Option described in the Stock Option
Agreement dated ((grantdate)) and in the PathoGenesis Corporation 1999 Employee
Stock Option Plan, and acknowledge receipt of a copy of the Agreement and the
Plan. By signing below, I acknowledge that I have read and that I understand
the terms contained in the Stock Option Agreement, including, but not limited
to, Section 9 above and the definition of "Detrimental Activity":
Date:___________________ Name: ((FirstName)) ((LastName))
-----------------------------
________________________________
Social Security Number
________________________________ __________________________________
Address Signature
9
<PAGE>
EXHIBIT 4.10
PathoGenesis Corporation
201 Elliott Avenue West, #150
Seattle, WA 98119
1999 STOCK PLAN
[INCENTIVE] [NON-QUALIFIED] STOCK OPTION AGREEMENT
((grantdate))
TO: ((FirstName)) ((LastName))
We are pleased to inform you that PathoGenesis Corporation ("PathoGenesis")
has awarded a stock option under the PathoGenesis Corporation 1999 Stock Plan
(the "Plan"). Capitalized terms are defined in Section 14 below or, if not so
defined, have the definitions set forth in the Plan.
PathoGenesis and you agree as follows:
1. Grant. PathoGenesis hereby grants to you an option under the Plan (the
"Option") to purchase ((sharenum)) shares of common stock, $.001 par value per
share, of PathoGenesis (the "Common Stock"), at a purchase price per share of
$((shareprice)) (the "option exercise price"), and you hereby accept the Option,
upon the terms and conditions set forth in this Agreement and the Plan. The
Option is [not] intended to be treated as an Incentive Stock Option.
2. Exercisability. Except as provided in Sections 7 and 8 below, the
Option shall vest and be exercisable as to one-quarter of the shares covered by
the Option on the first anniversary of the date hereof, with an additional one-
quarter of the Option becoming cumulatively exercisable on each of the second,
third and fourth anniversaries of the date hereof (each such anniversary date, a
"Vesting Date"). Unless sooner terminated, the Option will expire if and to the
extent it is not exercised within ten years from the date hereof.
3. Limitation on Exercise of Option. If you are granted incentive stock
options (whether under this Agreement or any other incentive stock option
agreement) and the aggregate Fair Market Value (determined as of the respective
dates of grant of such options) of the Common Stock with respect to such options
are first exercisable in any calendar year exceeds $100,000, the most recently
granted options shall be treated as nonqualified stock options to the extent of
the excess. In addition, in the case of simultaneously granted options,
PathoGenesis may, in the manner and to the extent permitted by law, designate
which shares are to be treated as stock acquired pursuant to the exercise of an
incentive stock option.
4. Exercise. You may exercise the Option for all or any portion of the
shares as to which it is exercisable (provided that only whole shares of Common
Stock will be issued pursuant to any partial exercise) by delivering written
notice of exercise to PathoGenesis specifying the number of shares of Common
Stock to be purchased. The form of notice of exercise is available from
PathoGenesis' Stock Option Administrator. Such notice shall be accompanied by
payment in full of the option exercise price (a) in cash, (b) to the extent
permitted by law and as permitted by the Committee from time to time, by other
means, including (i) tendering Common Stock (which, if not purchased on the open
market, Optionee must have held for at least six months, and for which you have
good title, free and clear of any
<PAGE>
lien or encumbrance), based on the Fair Market Value per share of Common Stock
on the date the Option is exercised, (ii) authorizing a third party to sell
shares (or a sufficient portion thereof) acquired upon exercise of the Option
and to remit to PathoGenesis a sufficient portion of the sale proceeds to pay
for all the shares acquired through such exercise and any tax withholding
obligations resulting from such exercise, or (iii) any combination of (i) and
(ii), or (c) any combination of (a) and (b). No Common Stock shall be issued on
exercise of the Option until payment therefor, as provided herein, has been
made.
You agree to pay to PathoGenesis, or make arrangements satisfactory to
PathoGenesis regarding payment of, any federal, state or local taxes of any kind
required by law to be withheld as a result of your exercise of the Option (or
any part thereof). Whenever cash is to be paid pursuant to an Option,
PathoGenesis shall have the right to deduct therefrom an amount sufficient to
satisfy any required federal, state and local withholding tax requirements
related thereto. Whenever shares of Common Stock are to be delivered pursuant to
an Option, PathoGenesis shall have the right to require you to remit to the
Company in cash an amount sufficient to satisfy any required federal, state and
local withholding tax requirements related thereto. The Committee may require
you to, or with the approval of the Committee you may, satisfy the foregoing
requirement by electing to have PathoGenesis withhold from delivery shares of
Common Stock having a value equal to the amount of tax to be withheld, which
shall not exceed the amount computed at the minimum statutory withholding rate.
Such shares shall be valued at the Fair Market Value per share of Common Stock
on the date as of which the amount of tax to be withheld is determined.
Fractional share amounts shall be settled in cash. Such a withholding election
may be made with respect to all or any portion of the shares of Common Stock to
be delivered pursuant to an Option.
5. Rights as Shareholder. You shall have no rights as a shareholder with
respect to any shares covered by the option until a stock certificate for such
shares is issued to you. Except as otherwise provided herein, no adjustment
shall be made for dividends or distributions of other rights for which the
record date is prior to the date such stock certificate is issued.
6. Non-Transferability. The Option is not transferable, assignable or
payable to anyone other than you, except (a) by will or pursuant to the
applicable laws of descent and distribution [or (b) as permitted by the
Committee, subject to such terms and conditions as the Committee may in its sole
discretion require, which shall include transferree's agreement to be bound by
all the terms and conditions of the Plan and this Agreement.] Following your
death, the Option may be exercised by your estate, or the person entitled to the
Option under the laws of descent and distribution, to the extent and during the
same period that you could have exercised the Option, determined on the date of
your death, except to the extent otherwise provided in this Agreement or the
Plan. The determination in good faith by the Committee of the person entitled to
exercise the Option following your death shall be final and binding on all
persons claiming any interest in the Option.
7. Termination of Service.
7.1 Termination Other Than for Cause, Retirement, Death or Permanent
Disability. If you cease to be employed by or to perform services for the
Company for any reason other than Cause, Retirement (as defined in Section 7.3),
death or Permanent Disability, unless otherwise provided in Section 7.5 below,
any unvested portion of the Option will terminate on the date of termination and
the vested portion of the Option, unless the Option sooner terminates or expires
under the terms hereof, will terminate on the date three months after the date
of termination of your employment or service.
<PAGE>
7.2 Termination for Death or Permanent Disability. If your employment or
service is terminated by reason of death or Permanent Disability (or if your
employment or service is terminated by reason of Permanent Disability and you
die within one year after such termination of employment or service), then, (a)
the portion of the Option that would have become exercisable on the immediately
following Vesting Date shall become vested and immediately exercisable on the
date of such termination, (b) any unvested portion of the Option will terminate
on the date of such termination of employment or service, and (c) the vested
portion of the Option (including, if applicable, that portion that becomes
exercisable pursuant to the foregoing clause(a)) unless sooner terminated under
the terms hereof, will terminate on the date one year after the date of such
termination of employment or service (or one year after your later death within
the one-year period after termination by reason of Permanent Disability).
7.3 Termination Due to Retirement. If you retire as an employee after
attaining 65 years of age and completing at least five years of consecutive
service as an employee of the Company ("Retirement"), (a) the portion of the
Option that would have become exercisable on the immediately following Vesting
Date shall become vested and immediately exercisable on the date of such
termination, (b) any unvested portion of the Option will terminate on the date
of such Retirement, and (c) the vested portion of the Option (including, if
applicable, that portion that becomes exercisable pursuant to the foregoing
clause (a)) may be exercised by you, unless the Option sooner terminates or
expires, at any time prior to the third anniversary of the date of your
Retirement[; provided, however, that to the extent not exercised within the
period required by Section 422(a)(2) of the Code, the Option or the relevant
portion thereof (unless exercised by your estate) shall cease to qualify as an
Incentive Stock Option and shall be treated as a Non-Qualified Stock Option].
7.4 Termination for Cause. If your employment or service is terminated
for Cause, the Option shall terminate as of the first discovery by the Company
of any reason for termination for Cause; provided that, upon a termination of
employment for Cause following a Change in Control, the Option shall not
terminate until your employment actually terminates.
7.5 Change in Status upon Termination. If (a) your employment is
terminated and concurrently the Company engages you as a consultant to the
Company or (b) your engagement as a consultant to the Company is terminated and
concurrently the Company hires you as an employee, the Committee at its sole
discretion may determine that the Option shall continue and shall terminate upon
termination of your new status in accordance with the applicable provisions of
Sections 7.1 to 7.4 above.
8. Change in Control. Upon the occurrence of a Change in Control, the
Option shall become fully vested and immediately exercisable and shall remain
exercisable until the earlier of its expiration, cancellation, or termination in
accordance with Section 7 of this Agreement.
9. Forfeiture and Recapture of Option Gain. If you engage in any
"Detrimental Activity," as defined below (a "Forfeiture Event"), during the one-
year period prior to or the one-year period after any exercise of the Option (or
any part thereof), (a) any unexercised portion of the Option shall terminate as
of the date on which the Committee determines that a Forfeiture Event has
occurred, and (b) the Committee shall have the right, within two years after the
date on which the Committee determines that a Forfeiture Event has occurred, to
require you to pay to the Company the amount of any "Gain" (as defined below) on
such exercise. Such payments shall be in such manner and on such terms and
conditions as may be required by the
<PAGE>
Committee, and the Company shall be entitled to set-off the amount of any such
Gain against any amount owed to you by the Company.
"Detrimental Activity" shall mean (i) the rendering of services for any
entity, or engaging directly or indirectly in any business, that is or becomes
competitive with the Company, or (ii) your breach of the confidentiality
agreement between the Company and you; provided, however, the foregoing clause
(i) shall apply (A) if on the date of grant you are an employee of the Company,
at any time before that date you were an employee of the Company, or on the date
of grant you are providing services on behalf of the Company with a view to
becoming an employee of the Company in the future and (B) to the extent
permitted by local employment law if you reside outside the United States.
"Gain" shall mean the product of (x) the excess of the Fair Market Value per
share of Common Stock on the date of such exercise over the option exercise
price and (y) the number of shares you purchased upon such exercise, regardless
of whether you have sold shares of Common Stock acquired in such exercise.
[Notwithstanding the foregoing, from and after a Change in Control, no
determination may be made that any Forfeiture Event has occurred.]
You acknowledge and agree that the provisions of this Section 9 are in
addition to, and not in lieu of, any non-solicitation, confidentiality and/or
non-competition obligations and other obligations that you may have, or any
rights or remedies the Company may have, whether by agreement, fiduciary
obligation or otherwise and that the grant and exercisability of the Option are
expressly made contingent on the absence of any Forfeiture Event as set forth in
this Section 9.
10. Securities Laws Compliance.
10.1 Registration Prior to Exercise. Notwithstanding anything herein to
the contrary, the Option may not be exercised unless and until a registration
statement on an appropriate form covering the shares of Common Stock issuable
upon exercise of the Option granted hereunder has been filed with the Securities
and Exchange Commission and has become effective under the Securities Act of
1933, and such shares are listed on a national securities exchange or the Nasdaq
Stock Market. Nothing in this agreement shall be deemed to obligate the Company
to effect any such registration. In addition, the Option shall in no event be
exercisable and shares shall not be issued hereunder if, in the opinion of
counsel to the Company, such exercise and/or issuance may result in a violation
of federal or state securities laws.
10.2 Investment Representation. If, at the time of exercise of the
Option, there does not exist a registration statement under the Securities Act
of 1933, which registration statement shall have become effective and shall
include a resale prospectus which is current with respect to shares subject to
the Option, you hereby covenant and agree with PathoGenesis that (i) you are
purchasing the shares for your own account and not with a view to the resale or
distribution thereof, (ii) any subsequent offer for sale or sale of any such
shares shall be made either pursuant to (x) a registration statement under that
Act, which registration statement shall have become effective and shall be
current with respect to the shares being offered and sold, or (y) an exemption
from the registration statement requirements of that Act, but in claiming such
exemption, you shall, prior to any offer for sale or sale of such shares, obtain
a favorable written opinion from counsel for or reasonably approved by
PathoGenesis as to the applicability of such exemption, and (iii) the
certificate evidencing such shares shall bear a legend to the effect of the
foregoing.
<PAGE>
11. No Employment or Service Rights. Nothing in this agreement shall give
you any right to continue in the employ or service of the Company or to
interfere with the right of the Company to terminate your employment or service.
12. Administration. The Committee will have full power and authority to
interpret and apply the provisions of this Agreement and act on behalf of
PathoGenesis and the Board in connection with this Agreement, and the decision
of the Committee as to any matter arising under this Agreement shall be binding
and conclusive as to all persons.
13. Disqualifying Disposition. You shall notify PathoGenesis of any
disposition of shares of Common Stock issued pursuant to the exercise of the
Option under the circumstances described in Section 421(b) of the Code (relating
to certain disqualifying dispositions), within ten days after disposition.
14. Certain Definitions. As used herein:
(a) "Affiliated Company" shall mean a corporation, limited liability
company, partnership or other business entity controlled by, controlling or
under common control with PathoGenesis.
(b) "Board" shall mean the board of directors of PathoGenesis.
(c) "Cause" shall mean dishonesty, disloyalty, insubordination, conviction
or confession of a felony, fraud, willful misconduct or breach of your
confidentiality agreement with the Company. Determination of Cause shall be
made by the Committee in its sole and absolute discretion.
(d) "Change in Control" means the first to occur of any of the following
events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of PathoGenesis (the "Outstanding Common Stock") or (2) the
combined voting power of the then outstanding voting securities of
PathoGenesis entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following: (1)
Any acquisition directly from PathoGenesis, other than an acquisition by
virtue of the exercise of a conversion privilege unless the security being
so converted was itself acquired directly from PathoGenesis, (2) Any
acquisition by PathoGenesis, (3) Any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by PathoGenesis or any
entity controlled by PathoGenesis, or (4) Any acquisition pursuant to a
transaction which complies with clauses (1), (2) and (3) of subsection
(iii) of this definition; or
(ii) A change in the composition of the Board such that the
individuals who, as of the effective date of the Plan, constitute the Board
(such Board shall be hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this definition any individual who
becomes a member of the Board subsequent to the effective date of the Plan,
whose election, or nomination for election by PathoGenesis' shareholders,
was approved by a vote of at least a majority of those individuals who are
members of the
<PAGE>
Board and who were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided further,
that any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board shall not be so considered as
a member of the Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
PathoGenesis or the acquisition by PathoGenesis of assets or stock of
another entity ("Corporate Transaction"); excluding, however, such a
Corporate Transaction following which (1) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of
the Outstanding Common Stock and Outstanding Voting Securities immediately
prior to such Corporate Transaction beneficially own, directly or
indirectly, more than 50% of, respectively, the outstanding shares of
common stock, and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns PathoGenesis or all or substantially all of PathoGenesis'
assets either directly or through one or more subsidiaries) in
substantially the same proportions, as their ownership immediately prior to
such Corporate Transaction, of the Outstanding Common Stock and Outstanding
Voting Securities, as the case may be, (2) no Person (other than
PathoGenesis, or any employee benefit plan (or related trust) of
PathoGenesis or such corporation resulting from such Corporate Transaction)
beneficially owns, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation resulting from
such Corporate Transaction or the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally in the
election of directors except to the extent that such ownership existed
prior to the Corporate Transaction, and (3) individuals who were members of
the Incumbent Board at the time of the execution of the initial agreement
or of the Board action providing for such Corporate Transaction constitute
at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(iv) The approval by the shareholders of PathoGenesis of a complete
liquidation or dissolution of PathoGenesis.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(f) "Committee" shall mean the committee of the Board appointed by the
Board to administer the Plan.
(g) "Company" shall mean PathoGenesis Corporation and shall include (1)
any "parent" or "subsidiary" (as such terms are defined in Section 424 of the
Code) of PathoGenesis and (2) any other entity in which PathoGenesis has a
significant equity or other interest as determined by the Committee.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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(i) "Incentive Stock Option" shall mean an option that is an "incentive
stock option" within the meaning of Section 422 of the Code, or any successor
provision.
(j) "Non-Qualified Stock Option" shall mean an option other than an
Incentive Stock Option.
(k) "Option" shall mean the option to purchase shares of Common Stock
granted pursuant to Section 1 above.
(l) "Permanent Disability" shall mean your inability to perform a
substantial portion of your duties by reason of any medically determinable
physical or mental impairment which can be expected to be of long-continued and
indefinite duration. Permanent Disability shall be determined solely by the
Committee upon medical evidence from a physician selected by the Committee. A
determination of Permanent Disability by the Committee hereunder shall not be
construed to be an admission of disability in regard to any other claim of
disability brought by you against the Company.
15. Miscellaneous.
15.1 Plan[;Conflict]. The Option and all of your rights thereunder are
subject to, and you agree to be bound by, all of the applicable terms and
conditions of the provisions of the Plan, incorporated herein by this reference.
You acknowledge receipt of a copy of the Plan. The Committee shall have fully
authority and discretion (subject only to the express provisions of the Plan) to
decide all matters relating to the administration and interpretation of the Plan
and this Agreement.
[In the event of a conflict between the provisions of this Agreement, or
the Plan, and the terms of a change in control employment agreement between
PathoGenesis and you (the "Change in Control Agreement") with respect to a
payment or benefit to be made or provided to you under this Agreement, whichever
if the provisions of this Agreement, or the Plan, or the Change in Control
Agreement that are most favorable to you will control.]
15.2 Notices. Any notice to be given under this Agreement shall be in
writing and addressed to PathoGenesis at its principal office located at 201
Elliott Avenue West, Seattle, Washington 98119, to the attention of Vice
President, Human Resources and to you at your address given beneath your
signature hereto, or at such other address as either party may hereafter
designate in writing to the other.
15.3 Binding Effects. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
15.4 Severability. The various provisions of this Agreement are severable
in their entirety. Any determination of invalidity or unenforceability in any
one provision shall have no effect on the continuing full and effect of the
remaining provisions.
15.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
[15.6 Acknowledgment. You acknowledge that accelerated vesting of all or a
part of the Option may cause all or a portion of the Option to cease to qualify
as incentive stock option.]
<PAGE>
Acceptance and Acknowledgment. Please execute the Acceptance and
Acknowledgment attached to the enclosed copy of this Agreement and return it to
PathoGenesis.
Very truly yours,
PATHOGENESIS CORPORATION
By:_______________________________________
Wilbur H. Gantz
Chairman and Chief Executive Officer
<PAGE>
PathoGenesis Corporation
201 Elliott Avenue West, #150
Seattle, WA 98119
ACCEPTANCE AND ACKNOWLEDGEMENT
of
[INCENTIVE] [NON-QUALIFIED] STOCK OPTION
INSTRUCTIONS: Please complete the information requested below. After signing
as indicated, detach this page and return it to PathoGenesis, to the attention
of the Stock Option Administrator.
I accept the [Incentive] [Non-Qualified] Stock Option described in the
Stock Option Agreement dated ((grantdate)) and in the PathoGenesis Corporation
1999 Stock Plan, and acknowledge receipt of a copy of the Agreement and the
Plan. By signing below, I acknowledge that I have read and that I understand the
terms contained in the Stock Option Agreement, including, but not limited to,
Section 9 above and the definition of "Detrimental Activity":
Date:__________________ Name: ((FirstName)) ((LastName))
---------------------------------
_______________________________
Social Security Number
_______________________________ _______________________________________
Address Signature
<PAGE>
EXHIBIT 10.32
FORM OF CHANGE IN CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between PathoGenesis Corporation, a Delaware corporation
(the "Company"), and _______________________ ("Executive"), dated as of
_____________, _____ (the "Agreement Date").
Recitals
A. The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of Executive, notwithstanding the
possibility, threat, or occurrence of a Change in Control (as defined below) of
the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control, to encourage Executive's
full attention and dedication to the Company, and to provide Executive with
compensation and benefits arrangements upon a Change in Control which (i) will
satisfy Executive's compensation and benefits expectations and (ii) are
competitive with those of other public corporations.
Agreement
In consideration of the mutual agreements contained herein, the Company and
Executive hereby agree as follows:
1. Certain Definitions. The terms set forth below have the following
meanings (such meanings to be applicable to both the singular and plural forms):
"Accrued Annual Bonus" means the amount of any Annual Bonus of Executive
accrued but not yet paid with respect to each fiscal year of the Company ended
prior to the Date of Termination.
"Accrued Base Salary" means the amount of any Annual Base Salary of
Executive accrued but not yet paid as of the Date of Termination.
"Accrued Obligations" -- see Section 4(a)(i)(A).
"Affiliated Company" means a corporation, limited liability company,
partnership or other business entity controlled by, controlling or under common
control with the Company.
"Agreement Term" means the period commencing on the Agreement Date and
ending on the third anniversary of such date or, if later, such later date to
which the Agreement Term is extended pursuant to the following sentence. On
each day after the second anniversary of the Agreement Date, the Agreement Term
shall be automatically extended by one day to create a new one-year term until,
at any time on or after the second anniversary of the Agreement Date, the
Company delivers a written notice (an "Expiration Notice") to Executive stating
that this Agreement shall expire on a date specified in the Expiration Notice
(the "Expiration Date") that is
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at least 12 months after the date the Expiration Notice is delivered to
Executive; provided, however, that if a Change in Control occurs before the
Expiration Date specified in an Expiration Notice, then (a) such Expiration
Notice shall automatically be cancelled and of no further effect and (b) the
Company shall not give Executive any additional Expiration Notice prior to the
date which is 24 months after the Effective Date.
"Annual Base Salary" -- see Section 2(b)(i).
"Annual Bonus" -- see Section 2(b)(ii).
"Board" means the board of directors of the Company.
"Cause" -- see Section 3(b).
"Change in Control" means the first to occur of any of the following
events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (A) the then outstanding shares
of common stock of the Company (the "Outstanding Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following: (1)
Any acquisition directly from the Company, other than an acquisition by
virtue of the exercise of a conversion privilege unless the security being
so converted was itself acquired directly from the Company, (2) Any
acquisition by the Company, (3) Any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
entity controlled by the Company, or (4) Any acquisition pursuant to a
transaction which complies with clauses (A), (B) and (C) of paragraph (iii)
of this definition; or
(ii) A change in the composition of the Board such that the
individuals who, as of [date of adoption], constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however,
for purposes of this definition any individual who becomes a member of the
Board subsequent to [date of adoption], whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
a majority of those individuals who are members of the Board and who were
also members of the Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a member of the
Incumbent Board; but, provided further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of the
Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition by the Company of assets or stock of another
entity ("Corporate Transaction"); excluding, however, such a Corporate
Transaction following which (A) all or substantially
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all of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such Corporate Transaction beneficially
own, directly or indirectly, more than 50% of, respectively, the
outstanding shares of common stock, and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions, as their
ownership immediately prior to such Corporate Transaction, of the
Outstanding Common Stock and Outstanding Company Securities, as the case
may be, (B) no Person (other than the Company, or any employee benefit plan
(or related trust) of the Company or such corporation resulting from such
Corporate Transaction) beneficially owns, directly or indirectly, 20% or
more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors except to the
extent that such ownership existed prior to the Corporate Transaction , and
(C) individuals who were members of the Incumbent Board at the time of the
execution of the initial agreement or of the Board action providing for
such Corporate Transaction constitute at least a majority of the members of
the board of directors of the corporation resulting from such Corporate
Transaction; or
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding the occurrence of any of the foregoing events, no Change in
Control shall occur with respect to Executive if Executive is, by written
agreement executed prior to the earlier of (x) the Change in Control or (y)
Board approval of the Change in Control, a participant on Executive's own behalf
in a transaction in which the persons (or their affiliates) with whom Executive
has the written agreement cause the Change in Control to occur and, pursuant to
the written agreement, Executive has an equity interest (or a right to acquire
such equity interest) in the resulting entity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Date of Termination" means the effective date of any termination of
Executive's employment for any or no reason, whether by the Company or by
Executive, as specified in the Notice of Termination; provided, however, that if
Executive's employment is terminated by reason of Executive's death or
Disability, the Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
"Disability" -- see Section 3(a).
"Disability Effective Date" -- see Section 3(a).
"Effective Date" means the first date during the Agreement Term on which a
Change in Control occurs. Anything in this Agreement to the contrary
notwithstanding, if Executive's employment is terminated, provided Executive can
reasonably demonstrate that such
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termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control or (ii) otherwise
arose in connection with an anticipation of a Change in Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
"Employment Period" means the period commencing on the Effective Date and
ending on the second anniversary of such date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Good Reason" -- see Section 3(c).
"Gross-Up Payment" -- see Section 5(a).
"including" means including without limitation.
"Non-Employee Director" means a director of the Company who is not an
employee of (i) the Company, (ii) any Affiliated Company or (iii) any Person who
beneficially owns more than 30% of the Common Stock then outstanding.
"Policies" means policies, practices and programs.
"Prorated Annual Bonus" means (i) the product of the amount of the Annual
Bonus to which Executive would have been entitled (based on target-level
performance) if he had been employed by the Company on the last day of the
Company's fiscal year that includes the Date of Termination and if performances
were achieved at the target level for such fiscal year, multiplied by (ii) a
fraction of which (x) the numerator is the number of days that have elapsed in
such fiscal year through the Date of Termination and (y) the denominator is 365.
"Taxes" means the incremental United States federal, state and local
income, excise and other taxes payable by Executive with respect to any
applicable item of income.
2. Terms of Employment. The Company hereby agrees to continue Executive
in its employ during the Employment Period on the following terms and
conditions:
(a) Position and Duties.
(i) During the Employment Period, (A) Executive's position
(including status, offices and titles), authority, duties and
responsibilities shall be at least commensurate in all material respects
with the most significant of those held or exercised by or assigned to
Executive at any time during the 90-day period immediately preceding the
Effective Date and (B) Executive's services shall be performed at the
location where Executive was employed immediately preceding the Effective
Date or any office or location less than 50 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation, sick leave and disability to which Executive is entitled,
Executive shall devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to Executive
hereunder, use Executive's reasonable
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<PAGE>
best efforts to perform faithfully and efficiently such responsibilities.
During the Employment Period, Executive may (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities are consistent with the policies of
the Company at the Effective Date and do not significantly interfere with
the performance of Executive's responsibilities (as set forth in this
Agreement) as an employee of the Company. To the extent that any such
activities have been conducted by Executive prior to the Effective Date and
were consistent with the policies of the Company at the Effective Date, the
continued conduct of such activities (or the conduct of activities similar
in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, Executive shall
receive an annual base salary in cash ("Annual Base Salary"), which shall
be paid in a manner consistent with the Company's payroll practices
immediately preceding the Effective Date at a rate at least equal to 12
times the highest monthly base salary (unreduced by any salary reductions
or deferrals pursuant to a plan maintained under Section 401(k) of the Code
or any similar plan) paid or payable to Executive by the Company in the 12-
month period immediately preceding the Effective Date. During the
Employment Period, the Company shall review the Annual Base Salary at least
annually and shall increase Annual Base Salary at any time and from time to
time as shall be substantially consistent with increases in base salary
awarded in the ordinary course of business to peer executives of the
Company. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term "Annual
Base Salary" shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, Executive
shall be awarded, for each fiscal year part or all of which is included in
the Employment Period, an annual bonus (the "Annual Bonus") in cash which
is at least equal to the greater of (A) the amount of annual bonus actually
paid to Executive during the fiscal year immediately preceding the
Effective Date or (B) the target bonus for the Executive for the fiscal
year that includes the Effective Date (or, if not yet determined for the
current fiscal year, for the immediately preceding fiscal year) previously
determined by the Board or the compensation committee of the Board (in
either case (A) or (B), any such annual bonus amount to be annualized for
any fiscal year consisting of less than 12 full months or with respect to
which Executive has been employed by the Company for less than 12 full
months). The Company shall pay each such Annual Bonus in cash no later than
90 days after the end of the fiscal year for which the Annual Bonus is
awarded, unless Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Other Plans. In addition to Annual Base
Salary and Annual Bonus payable as hereinabove provided, Executive shall be
entitled to participate during the Employment Period in all incentive,
stock option, savings and other plans and Policies applicable to peer
executives of the Company, but in no event shall
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<PAGE>
such plans and Policies provide Executive with incentive or other benefits
opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company for Executive under such
plans and Policies as in effect at any time during the 90-day period
immediately preceding the Effective Date.
(iv) Welfare Benefit Plans. During the Employment Period, Executive
and/or Executive's family, as the case may be, shall be eligible to
participate in and shall receive all benefits under welfare benefit plans
and Policies provided by the Company and applicable to peer executives of
the Company, but in no event shall such plans and Policies provide benefits
which are less favorable, in the aggregate, than the most favorable of such
plans and Policies in effect at any time during the 90-day period
immediately preceding the Effective Date.
(v) Expenses. During the Employment Period, Executive shall be
entitled to prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the most favorable Policies of the Company in
effect at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to Executive, as in effect at any time
thereafter with respect to peer executives of the Company.
(vi) Fringe Benefits. During the Employment Period, Executive shall
be entitled to fringe benefits in accordance with the most favorable plans
and Policies of the Company in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
Executive, as in effect at any time thereafter with respect to peer
executives of the Company.
(vii) Office; Support Staff. During the Employment Period, Executive
shall be entitled to an office or offices of a size and with furnishings
and other appointments, and to personal secretarial and other assistance,
at least equal to the most favorable of the foregoing provided to Executive
by the Company at any time during the 90-day period immediately preceding
the Effective Date or, if more favorable to Executive, as provided at any
time thereafter with respect to peer executives of the Company.
(viii) Vacation. During the Employment Period, Executive shall be
entitled to paid vacation in accordance with the most favorable plans and
Policies of the Company as in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
Executive, as in effect at any time thereafter with respect to peer
executives of the Company.
(ix) Affiliated Companies. To the extent that, immediately prior to
the Effective Date, Executive has been on the payroll of, and participated
in the bonus, incentive or employee benefit plans of, an Affiliated
Company, the references to the Company contained in Sections 2(b)(i)
through 2(b)(viii) and elsewhere in this Agreement referring to benefits to
which Executive may be entitled shall also refer to such Affiliated
Company.
3. Termination of Employment.
(a) Death or Disability. Executive's employment shall terminate
automatically upon Executive's death during the Employment Period. If the
Company determines in good faith that
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<PAGE>
the Disability of Executive has occurred during the Employment Period, it may
give to Executive written notice of its intention to terminate Executive's
employment. In such event, Executive's employment with the Company shall
terminate as of the 30th day after Executive's receipt of such notice (the
"Disability Effective Date"); provided that, within the 30 days after such
receipt, Executive shall not have returned to full-time performance of
Executive's duties. "Disability" means the absence of Executive from Executive's
duties with the Company on a full-time basis for a period of time equal to the
Waiting Period as a result of incapacity due to mental or physical illness that
is determined to be total and permanent by a physician selected by the Company
or its insurers and reasonably acceptable to Executive or Executive's legal
representative. "Waiting Period" means the waiting period under a long-term
disability plan of the Company that is applicable to Executive and satisfies the
requirements of Section 2(b)(iv).
(b) Cause. The Company may terminate Executive's employment for Cause
during the Employment Period. "Cause" means the occurrence of any one or more
of the following actions or failures to act as determined by the Board in its
reasonable judgment and in good faith:
(i) embezzlement, fraud or theft by Executive with respect to the
property of the Company or a conviction of Executive for any felony
involving moral turpitude or causing material harm, financial or otherwise,
to the Company;
(ii) habitual neglect, after notice from the Board, in the
performance of Executive's significant duties (other than on account of
incapacity due to physical or mental illness or Disability); or
(iii) a demonstrably deliberate act or failure to act of Executive,
including a violation of the rules or policies of the Company, which causes
a material financial or other loss, damage or injury to the property,
reputation or employees of the Company; provided, however, that, unless
such act or failure to act was done by Executive in bad faith or without a
reasonable belief that Executive's act or failure to act, as the case may
be, was in the best interest of the Company or was required by applicable
law, such act or failure to act shall not constitute Cause if, within 20
days after the Board or the Chief Executive Officer of the Company gives
Executive written notice of such act or failure to act that specifically
refers to this Section, Executive cures such act or failure to act to the
fullest extent that it is curable;
provided, however, that:
(A) "Cause" shall not mean (x) bad judgment or negligence other than
habitual neglect of significant duties or (y) any act or omission in
respect of which the Board could have properly determined that Executive
met the applicable standard of conduct for the indemnification or
reimbursement under the by-laws of the Company or applicable law, in each
case as in effect at the time of such act or omission; and
(B) a termination of Executive's employment shall not be deemed to be
for Cause unless each of the following conditions is satisfied:
(1) The Company provides Executive a written notice (a "Notice
of Intent to Terminate") not less than 30 days prior to the Date of
Termination setting
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forth the Company's intention to consider terminating Executive's
employment. Such Notice shall include a statement of the intended Date
of Termination and a detailed description of the specific facts that
the Company believes to constitute Cause.
(2) Any act or omission of Executive alleged to constitute Cause
shall have occurred not more than 12 months before the earliest date
on which any member of the Board who is not a party to the act or
omission knew or in the reasonable exercise of his or her duties as a
director should have know of such act or omission.
(3) Executive is offered an opportunity to respond to such
Notice of Intent to Terminate by appearing in person, together with
Executive's legal counsel, before the Board on a date specified in the
Notice of Intent to Terminate, which date shall be at least 25 days
after Executive's receipt of the Notice of Intent to Terminate and, in
any event, at least five days prior to the Date of Termination
proposed in such Notice.
(4) By a vote of the Board that includes the affirmative vote of
at least 75% of the Non-Employee Directors, the Board determines that
the actions of Executive specified in the Notice of Intent to
Terminate constitute Cause and that Executive's employment should
accordingly be terminated for Cause.
(5) The Company provides Executive with a copy of the Board's
written determination pursuant to clause (4) setting forth in detail
(a) the specific basis for such termination for Cause and (b) the Date
of Termination (which date shall be not more than 15 days after the
giving of such notice).
By determination of the Board, the Company may suspend Executive from
Executive's duties for a period of up to 30 days with full pay and benefits
thereunder during the period of time in which the Board is determining whether
to terminate Executive for Cause. Any purported termination for Cause by the
Company that does not satisfy each substantive and procedural requirement of
this Section 3(b) shall be treated for all purposes under this Agreement as a
termination by the Company without Cause.
(c) Good Reason. Executive may terminate Executive's employment at any
time during the Employment Period for Good Reason. "Good Reason" means any one
or more of the following:
(i) the assignment to Executive of any duties inconsistent in any
respect with Executive's position (including status, offices and titles),
authority, duties or responsibilities as contemplated by Section 2(a), or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 2(b), other than an isolated, insubstantial and inadvertent
failure not occurring in
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<PAGE>
bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by Executive;
(iii) any requirement that Executive be based at any office or
location other than the location specified in Section 2(a)(i)(B);
(iv) any purported termination by the Company of Executive's
employment otherwise than as expressly permitted by this Agreement (it
being understood that any such purported termination shall not be effective
for any other purpose of this Agreement); or
(v) any failure by the Company to comply with Section 11(c).
Anything in this Agreement to the contrary notwithstanding, any termination
by Executive for any reason during the 30-day period immediately following
the first anniversary of the Effective Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
Any good faith determination of Good Reason made by Executive shall be
conclusive.
(d) Notice of Termination. Any termination of Executive's employment by
the Company or by Executive shall be communicated by Notice of Termination to
the other party hereto. "Notice of Termination" means a written notice which
(i) indicates the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated and (iii) specifies the Date of Termination (which date shall be not
more than 15 days after the giving of such notice). The failure by Executive to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any right of Executive
hereunder or preclude Executive from asserting such fact or circumstance in
enforcing Executive's rights thereunder.
4. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, Executive's employment shall be terminated by the Company
(other than for Cause, or by reason of death or Disability), or by Executive for
Good Reason, then the Company shall have all of the following obligations:
(i) The Company shall pay to Executive the following amounts in a
lump sum in cash within 10 days after the Date of Termination:
(A) an amount equal to the sum of the Accrued Base Salary, the
Accrued Annual Bonus, any compensation previously deferred by
Executive under any non-qualified deferred compensation plan or
arrangement (together with any accrued interest or earnings thereon)
and accrued but unpaid vacation pay (collectively, the "Accrued
Obligations"),
(B) the Prorated Annual Bonus, and
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(C) the product of [two] [three] times the sum of (x) the Annual
Base Salary and (y) the Annual Bonus.
(ii) Any stock options or similar equity incentive rights previously
granted to Executive that are not then fully vested and exercisable
pursuant to their terms shall become fully vested and immediately
exercisable on the Date of Termination and, together with any stock options
or similar equity incentive rights that vested on the Effective Date (to
the extent such options or rights have not expired pursuant to their terms
and are unexercised), remain exercisable until the earlier of (x)
expiration in accordance with their scheduled terms (without regard to any
termination as a result of termination of employment for any reason) or (y)
the first anniversary of the Date of Termination. As to any other types of
equity-based incentive awards previously granted to Executive under any
equity-based incentive compensation plan or arrangement of the Company, any
restrictions on exercise, payment or transfer shall immediately lapse, and
(unless waived or deferred by Executive) Executive shall be paid any cash
or property underlying such award, within 10 days after the Date of
Termination, in all respect as though any vesting requirements or any
corporate or individual performance goals associated with such awards had
been met as of the Date of Termination.
(iii) (A) During the period commencing on the Date of Termination
and continuing thereafter for two years, or such longer period as
provided in any plan or Policy in which Executive is a participant as
of the Date of Termination (such eligibility to be determined based on
the terms of such plan or Policy as in effect on the Effective Date
or, if more favorable to Executive, the terms of such plan or Policy
as in effect on the Date of Termination), the Company shall continue
to provide, at no cost to Executive, medical, dental and similar
health care benefits (or, if such benefits are not available, the
after-tax economic value thereof determined pursuant to paragraph (C)
of this Section 4(a)(iii) to Executive and Executive's family.
(B) The terms of such benefits shall be at least as favorable
to Executive as the terms of the most favorable plans or Policies of
the Company applicable to peer executives at Executive's Date of
Termination, but in no event less favorable to Executive than the most
favorable plans or Policies of the Company applicable to peer
executives during the 90-day period immediately preceding the
Effective Date.
(C) The after-tax economic value of any benefit to be
provided pursuant to paragraph (A) above shall be deemed to be the
present value of the premiums expected to be paid for all such
benefits that are to be provided on an insured basis. The after-tax
economic value of all other benefits shall be deemed to be the present
value of the expected net cost to the Company of providing such
benefits.
(iv) The Company shall cause Executive to receive, at the Company's
expense, standard outplacement services from a nationally-recognized firm
selected by Executive; provided that the cost to the Company of such
services
10
<PAGE>
shall not exceed 15% of the sum of (x) Annual Base Salary and (y) the
Annual Bonus in effect on the Date of Termination.
(b) Cause; Other than for Good Reason. If, during the Employment Period,
Executive's employment is terminated (i) by the Company for Cause or (ii) by
Executive other than for Good Reason, the Company shall pay to Executive in a
lump sum in cash within 10 days after the Date of Termination any unpaid salary
earned, and any unpaid accrued vacation pay, as of the Date of Termination.
(c) Death or Disability. If, during the Employment Period, Executive's
employment is terminated by reason of Executive's death or Disability, the
Company shall pay an amount equal to all Accrued Obligations to Executive or
Executive's estate or beneficiary, as applicable, in cash a lump sum within 10
days after the Date of Termination.
5. Certain Additional Payments by the Company.
(a) Gross-Up. Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company or its affiliates to or for the benefit
of Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any additional payments required under this Section 5) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(b) Determination of Gross-Up. Subject to the provisions of Section 5(c),
all determinations required to be made under this Section 5, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by PricewaterhouseCoopers LLP (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and Executive within 15
business days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5, shall be paid by the Company to Executive within five days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event
11
<PAGE>
that the Company exhausts its remedies pursuant to Section 5(c) and Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.
(c) Amount Increased or Contested. Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business days after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies Executive in writing prior to the
expiration of such period that it desires to contest such claim, Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an after-
tax basis, for any Excise Tax or income tax (including interest and penalties
with respect thereto) imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing provisions of this
Section 5(c), the Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
12
<PAGE>
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) Refund. If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 5(c), Executive becomes entitled to receive any
refund with respect to such claim, Executive shall (subject to the Company's
complying with the requirements of Section 5(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 5(c), a determination is made that
Executive shall not be entitled to any refund with respect to such claim and the
Company does not notify Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
6. Non-Exclusivity of Rights. If Executive receives payments pursuant to
Section 4(a), Executive hereby waives the right to receive severance payments
under any other plan, policy or agreement of the Company. Except as provided in
the previous sentence, nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans or Policies provided by the Company or any of its Affiliated
Companies and for which Executive may qualify, nor shall anything herein limit
or otherwise affect such rights as Executive may have under any other agreements
with the Company or any of its Affiliated Companies.
7. Conflicts. In the event of a conflict between the provisions of this
Agreement and the terms of any equity-based incentive plan (a "Plan") or any
written agreement between the Company and Executive evidencing any equity-based
incentive awards (an "Award Agreement") under such Plan with respect to a
payment or benefit to be made or provided to Executive under this Agreement,
whichever of the provisions of this Agreement or such Plan or Award Agreement
that are most favorable to Executive will control. In addition, for purposes of
any such Award Agreement, (a) following a Change in Control, "Cause" shall have
the meaning set forth in this Agreement and (b) "Permanent Disability" shall
have the meaning ascribed to "Disability" in this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including set-off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Executive or others.
9. No Duty to Mitigate. Executive shall not be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement, nor shall the amount
of any payment hereunder be reduced by any compensation earned by Executive as
result of employment by another employer or by any retirement benefits which may
be paid or payable to Executive; provided, however, that any continued welfare
benefits provided for pursuant to Section 4(a)(iii) shall not duplicate any
benefits that are provided to Executive and Executive's family by such other
employer and shall be secondary to any coverage provided by such other employer.
13
<PAGE>
10. Enforcement.
(a) Reimbursement of Expenses. If Executive incurs legal, accounting,
expert witness or other fees and expenses in an effort to establish entitlement
to compensation and benefits under this Agreement (or otherwise in connection
with a dispute under this Agreement), the Company shall, regardless of the
outcome of such effort, pay or reimburse Executive for such fees and expenses,
together with an additional amount such that, after providing for the Taxes
payable by Executive in respect of such additional amount, there remains a
balance sufficient to pay the Taxes payable by Executive in respect of such
payment or reimbursement of fees and expenses by the Company. The Company shall
reimburse Executive for such fees and expenses on a monthly basis within 10 days
after its receipt of Executive's request for reimbursement accompanied by
reasonable evidence that the fees and expenses were incurred.
(b) Refund. If Executive does not prevail (after exhaustion of all
available judicial remedies), and the Company establishes before a court of
competent jurisdiction that Executive had no reasonable basis for bringing an
action hereunder and acted in bad faith in doing so, no further reimbursement
for legal fees and expenses shall be due to Executive and Executive shall refund
any amounts previously reimbursed hereunder with respect to such action.
(c) Interest. If the Company fails to pay any amount provided under this
Agreement when due, the Company shall pay interest on such amount at a rate
equal to 200 basis points over the prime commercial lending rate published from
time to time in The Wall Street Journal (Midwest Edition); provided, however,
that the interest rate determined in accordance with this Section shall in no
event exceed the highest legally-permissible interest rate.
11. Successors.
(a) Successors to Executive. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be assignable by
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) Successors to Company. The Company may not assign its rights and
obligations under this Agreement without the prior written consent of Executive
except to a successor which has satisfied the provisions of Section 11(c). This
Agreement shall inure to the benefit of the Company and such permitted assigns.
(c) Obligations of Company's Successors. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. All references to the Company shall also
refer to any such successor, and the Company and such successor shall be jointly
and severally liable for all obligations of the Company under this Agreement.
14
<PAGE>
12. Miscellaneous.
(a) Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to such
State's principles of conflict of laws.
(b) Notices. All notices hereunder shall be in writing and shall be given
by hand delivery, nationally-recognized courier service that provides overnight
delivery, or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to Executive, at Executive's most recent home address on file with
the Company.
If to the Company, to: PathoGenesis Corporation
Attention: General Counsel
5215 Old Orchard Road, Suite 900
Skokie, Illinois 60077
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice shall be effective when actually
received by the addressee.
(c) Severability. If any part of this Agreement is declared by any court
or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any part of this Agreement not declared
to be unlawful or invalid. Any paragraph or part of a paragraph so declared to
be unlawful or invalid shall, if possible, be construed in a manner which will
give effect to the terms of such paragraph or part of a paragraph to the fullest
extent possible while remaining lawful and valid.
(d) Tax Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) Amendments; Waiver. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the Company and Executive. A
waiver of any term, covenant or condition contained in this Agreement shall not
result in a waiver of any other term, covenant or condition, and any waiver of
any default shall not result in a waiver of any later default.
(f) Entire Agreement. This Agreement contains the entire understanding of
the Company and Executive with respect to the subject matter hereof, and shall
supersede all prior agreements, promises and representations of the parties
regarding employment or severance, whether in writing or otherwise.
(g) No Right to Employment. Except as may be provided under any other
agreement between Executive and the Company, the employment of Executive by the
Company is at will, and, prior to the Effective Date, may be terminated by
either Executive or the Company at any time. Except as specifically provided
under this Agreement, upon a termination of Executive's employment prior to the
Effective Date, there shall be no further rights under this Agreement.
15
<PAGE>
(h) Sections. Except where otherwise indicated by the context, any
reference to a "Section" shall be to a section of this Agreement.
(i) Survival of Executive's Rights. All of Executive's rights hereunder
shall survive the termination of Executive's employment.
(j) Number and Gender. Wherever appropriate, the singular shall include
the plural, the plural shall include the singular, and the masculine shall
include the feminine.
(k) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
16
<PAGE>
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement
as of the date first above written.
PATHOGENESIS CORPORATION
By /s/ Wilbur H. Gantz
-------------------------------
Wilbur H. Gantz
Chairman and CEO
________________________________
[Name of Executive]
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PATHOGENESIS CORPORATION FOR THE
SIX MONTHS ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,480,597
<SECURITIES> 37,033,085
<RECEIVABLES> 4,450,155
<ALLOWANCES> 0<F1>
<INVENTORY> 15,652,052
<CURRENT-ASSETS> 63,866,425
<PP&E> 29,321,215
<DEPRECIATION> 11,229,185
<TOTAL-ASSETS> 97,677,613
<CURRENT-LIABILITIES> 10,803,772
<BONDS> 0
0
0
<COMMON> 16,395
<OTHER-SE> 86,857,446
<TOTAL-LIABILITY-AND-EQUITY> 97,677,613
<SALES> 24,121,584
<TOTAL-REVENUES> 24,561,447
<CGS> 4,748,990
<TOTAL-COSTS> 32,807,678
<OTHER-EXPENSES> 112,584
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 401,669
<INCOME-PRETAX> (7,237,263)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,237,263)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,237,263)
<EPS-BASIC> (0.44)
<EPS-DILUTED> (0.44)
<FN>
<F1>THE AMOUNT OF RECEIVABLES REPORTED IS NET OF $1,927,416 OF ALLOWANCES.
<F2>THE TOTAL COSTS INCLUDE LOSS PROVISION OF $78,231.
</FN>
</TABLE>
