<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Pharmacopeia, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
[Pharmacopeia logo appears here]
Joseph A. Mollica, Ph.D.
Chairman, President and
Chief Executive Officer
April 9, 1999
Dear Stockholders:
It is my pleasure to invite you to the Annual Meeting of Stockholders of
Pharmacopeia, Inc., to be held on Tuesday, May 4, 1999 at 9:00 a.m. at The
Forrestal at Princeton, 100 College Road East, Princeton, New Jersey. The
Notice of Annual Meeting and Proxy Statement accompanying this letter
describes the business to be conducted at the meeting.
I hope that you will be able to join us. If you are unable to attend this
year's meeting, you can ensure your representation by completing the enclosed
Proxy and returning it to us promptly.
Thank you for your interest and participation in the affairs of Pharmacopeia.
Sincerely,
/s/ Joseph A. Mollica
Joseph A. Mollica
<PAGE>
PHARMACOPEIA, INC.
Notice of Annual Meeting of Stockholders
To Be Held May 4, 1999
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of
Pharmacopeia, Inc., a Delaware corporation (the "Company"), will be held on
May 4, 1999, at 9:00 a.m. local time, at The Forrestal at Princeton, 100
College Road East, Princeton, New Jersey for the following purposes, as more
fully described in the Proxy Statement accompanying this Notice:
1. To elect three directors to the Board of Directors for a term of three
years.
2. To amend the Company's 1994 Incentive Stock Plan to increase the number
of shares of Common Stock authorized for issuance thereunder from
2,750,000 to 3,700,000 shares.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on March 15, 1999 are
entitled to receive notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy Card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Stockholders attending the
meeting may vote in person even if they have returned a Proxy Card.
By Order of the Board of
Directors,
/s/ Lewis J. Shuster
Lewis J. Shuster
Secretary
Princeton, New Jersey
April 9, 1999
<PAGE>
PHARMACOPEIA, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of Pharmacopeia, Inc., a Delaware
corporation (the "Company"), for use at its 1999 Annual Meeting of
Stockholders to be held on May 4, 1999, at 9:00 a.m., local time, or at any
adjournments or postponements thereof, for the purposes set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at The Forrestal at Princeton,
100 College Road East, Princeton, New Jersey. The Company's principal
executive offices are located at CN5350, Princeton, NJ 08543-5350. The
Company's telephone number is (609) 452-3600.
These proxy solicitation materials were mailed on or about April 9, 1999 to
all stockholders entitled to vote at the Annual Meeting.
Record Date; Outstanding Shares
Stockholders of record at the close of business on March 15, 1999 (the
"Record Date"), are entitled to receive notice of and vote at the Annual
Meeting. On the Record Date, 19,276,242 shares of the Company's Common Stock,
$0.0001 par value, were issued and outstanding.
Revocability of Proxies
Proxies given pursuant to this solicitation may be revoked at any time
before they have been used. Revocation will occur by delivering a written
notice of revocation to the Company or by duly executing a proxy bearing a
later date. Revocation will also occur if the individual attends the Annual
Meeting and votes in person.
Voting and Solicitation
Every stockholder of record on the Record Date is entitled, for each share
held, to one vote on each proposal or item that comes before the Annual
Meeting. Votes cast in person or by proxy at the Annual Meeting will be
tabulated by the Inspector of Election appointed for the Annual Meeting who
will determine whether or not a quorum is present and the results of the votes
with respect to each matter.
The presence at the Annual Meeting, in person or by proxy, of the holders of
a majority of the shares of Common Stock outstanding on the Record Date and
entitled to vote thereat will constitute a quorum. The Inspector of Election
will treat abstentions and broker non-votes as shares that are present and
entitled to vote for the purpose of determining the presence of a quorum.
The election of directors will be decided by a plurality of the votes cast.
Accordingly, abstentions and broker non-votes will have no effect on the
outcome of the vote. The approval of the proposed amendment to the 1994
Incentive Stock Plan will require the affirmative vote of the holders of a
majority of the shares of Common Stock present in person or by proxy and
entitled to vote at the Annual Meeting. Abstentions will be treated as votes
cast with respect to this proposal and therefore, will have the same effect as
a vote against the proposal. Broker non-votes will not be counted as votes
cast with respect to this proposal and therefore, will have no effect on the
outcome of the vote.
The cost of this solicitation will be borne by the Company. The Company may
reimburse expenses incurred by brokerage firms and other persons representing
beneficial owners of shares in forwarding solicitation material to beneficial
owners. Proxies may be solicited by certain of the Company's directors,
officers and regular employees, without additional compensation, personally,
by telephone or by telegram.
-1-
<PAGE>
Deadline for Receipt of Stockholder Proposals
Stockholder proposals pursuant to Rule 14a-8 under the Securities Exchange
Act of 1934, as amended ("Rule 14a-8") that are intended to be presented at
the Company's 2000 Annual Meeting must be received by the Company no later
than December 4, 1999 in order that they may be included in the proxy
statement and form of proxy for that meeting. In addition, in accordance with
Rule 14a-4(c) under the Securities Exchange Act of 1934, as amended, the
Company's form of proxy relating to the 2000 Annual Meeting of Stockholders
will confer discretionary authority to vote at such meeting on matters that
are submitted to the Company outside the processes of Rule 14a-8 after
February 17, 2000.
Auditors
At the Annual Meeting, stockholders will not be asked to ratify the
selection of an independent auditor. Ernst & Young LLP is currently the
Company's auditor. The Company has not had any disagreement with Ernst & Young
LLP regarding audit procedures or financial matters. However, the Company has
not yet completed the process of selecting its auditor for 1999.
-2-
<PAGE>
PROPOSAL ONE:
ELECTION OF DIRECTORS
General
The Company's Board of Directors is divided into three classes, with the
term of office of one class expiring each year. The Company currently has
seven directors with three directors in Class I, two directors in Class II and
two directors in Class III. The terms of office of Class I directors Joseph A.
Mollica, Gary E. Costley and C. Peter W. Booth expire at the 1999 Annual
Meeting. The terms of office of Class II directors Frank Baldino, Jr. and
Edith W. Martin expire at the 2000 Annual Meeting and the terms of office of
Class III directors Paul A. Bartlett and Charles A. Sanders expire at the 2001
Annual Meeting. At the 1999 Annual Meeting, the stockholders will elect three
Class I directors for a term of three years.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's three nominees named below. If any of the
nominees of the Company is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who is
designated by the present Board of Directors to fill the vacancy. It is not
expected that any of the nominees will be unable or will decline to serve as a
director. The Board of Directors recommends that the stockholders vote FOR the
nominees listed below.
Nominees for Election at the Annual Meeting
The names of the nominees, and certain information about them, are set forth
below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Position/Principal Occupation Since
-------------------------- --- ------------------------------------- --------
<C> <C> <S> <C>
Joseph A. Mollica, Ph.D. 58 Director; Chairman of the Board, 1994
President and Chief Executive Officer
of the Company
Gary E. Costley, Ph.D. (2) 55 Director; Chairman of the Board, 1996
President and Chief Executive Officer
of International Multifoods
Corporation
C. Peter W. Booth (1) 59 Sr. Vice President, Strategy and 1998
Development of Corning Incorporated
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Dr. Mollica has served as the Chairman of the Board of Directors and Chief
Executive Officer of the Company since February 1994 and was appointed
President in August 1996. From 1987 to December 1993, Dr. Mollica was employed
initially by the DuPont Company and then by the DuPont Merck Pharmaceutical
Company, most recently as President and Chief Executive Officer. Dr. Mollica
is a Director of USP, Inc., ImPath, Inc., and Neurocrine BioSciences, Inc.
Dr. Costley has served as a director of the Company since February 1996. Dr.
Costley has served as the Chairman of the Board of Directors, President and
Chief Executive Officer of International Multifoods Corporation, a food
company, since January 1997. From May 1995 through January 1997, Dr. Costley
was the Dean of the Babcock Graduate School of Management, Wake Forest
University. For more than five years prior to that time, Dr. Costley held
various management positions with Kellogg Company, most recently as Executive
Vice President. Dr. Costley is currently a Director of International
Multifoods Corporation and Candlewood Hotel Co. Inc.
C. Peter W. Booth was a Director of Molecular Simulations Incorporated
("MSI") from August 1995 until its acquisition by the Company in June, 1998.
Mr. Booth has served as Senior Vice President, Strategy and Development of
Corning Incorporated ("Corning") since 1991. Mr. Booth is also a Director of
Samsung Corning Co., Ltd., Corning Asahi Video Co., and The Japan Fund.
-3-
<PAGE>
Incumbent Directors Whose Terms of Office Continue After the Annual Meeting
The names and certain other information about the directors whose terms of
office continue after the Annual Meeting are set forth below:
<TABLE>
<CAPTION>
Director
Name of Director Age Position/Principal Occupation Since
----------------------------- --- ----------------------------------- --------
<C> <C> <S> <C>
Frank Baldino, Jr., Ph.D. (2) 45 Director; President and Chief 1996
Executive Officer of Cephalon, Inc.
Edith W. Martin, Ph.D. (1) 53 Director; Vice President and Chief 1997
Information Officer of Halliburton
Company
Charles A. Sanders, M.D. (2) 67 Director; Retired 1997
Paul A. Bartlett, Ph.D. (1) 51 Director; Chairman, Department of 1998
Chemistry at the University of
California, Berkeley
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
There is no family relationship between any director, executive officer or
nominee for director of the Company.
Dr. Baldino has served as a director of the Company since October 1996. Dr.
Baldino is a founder of Cephalon, Inc., an integrated specialty
biopharmaceutical company and has served as its President and Chief Executive
Officer since 1987. Dr. Baldino is currently a director of Cephalon, Inc.,
ViroPharma, Inc., First Consulting Group and certain other closely held
companies and charitable organizations.
Dr. Martin has served as a director of the Company since May 1997. Dr.
Martin is Vice President and Chief Information Officer of Halliburton Company,
an engineering services, engineering and construction and energy equipment
company. Dr. Martin is also the President of Advanced Global Technologies, a
private consulting firm in the technology advisory area. Between January 1996
and December 1997, Dr. Martin was the Chief Information Officer and Vice
President of Eastman Kodak Company. Between September 1994 and February 1996,
Dr. Martin was the Executive Vice President and Chief Technology Officer of
the Student Loan Marketing Association ("Sallie Mae"). Prior to joining Sallie
Mae, Dr. Martin had been Vice President and Chief Information Officer of the
International Telecommunications Satellite Organization ("INTELSAT") since
1992. Dr. Martin serves as a director of Information Resources, Inc. and
Immunex Corporation.
Dr. Sanders has served as a director of the Company since July 1997. From
1992 until his retirement in 1995, Dr. Sanders held the position of Chairman
of the Board of Directors of Glaxo, Inc., where he was also Chief Executive
Officer from 1989 to 1994. Dr. Sanders serves on the Boards of Directors of
Kendle International Inc., Magainin Pharmaceuticals, Scios Inc., Staffmark,
Inc., Trimeris, Inc. and Vertex Pharmaceuticals and certain other closely held
companies and charitable organizations.
Dr. Bartlett has served as a director of the Company since January 1998. Dr.
Bartlett is a member of Pharmacopeia's Scientific Advisory Board. Dr. Bartlett
has been a Professor of Chemistry at the University of California, Berkeley
since 1973 and is the Chairman of the Department of Chemistry at the
University of California, Berkeley.
-4-
<PAGE>
Stock Ownership of Principal Stockholders and Management
The following table sets forth the beneficial ownership of the Company's
Common Stock as of January 31, 1999 (i) by all persons known to the Company to
be the beneficial owners of more than 5% of the Company's Common Stock, (ii)
by each of the executive officers named in the table under "Executive
Compensation--Summary Compensation Table," (iii) by each director and nominee
for director, and (iv) by all current directors and executive officers as a
group:
<TABLE>
<CAPTION>
Approximate
Percentage of
Number of Total Voting
Name of Person or Entity Shares (1) Power
- --------------------------------------------------- --------- -------------
<S> <C> <C>
Corning Incorporated
One Riverfront Plaza
Corning, NY 14831................................. 2,875,081(2) 14.93%
Merrill Lynch & Co. Inc.
250 Vesey St.
World Financial Center N. Tower
New York, NY 10289................................ 1,724,000(3) 8.95%
D.E. Shaw Investment Group L.P.
120 W. 45th St. 39th floor
Tower 45
New York, NY 10036................................ 1,274,579(4) 6.62%
Wellington Management Company, LLP
75 State Street
Boston, MA 02109.................................. 1,015,200(5) 5.27%
Joseph A. Mollica.................................. 297,001(6) 1.54%
John J. Baldwin.................................... 169,244(7) *
Nolan H. Sigal .................................... 177,797(8) *
Stephen A. Spearman................................ 39,678(9) *
Lewis J. Shuster................................... 99,979(10) *
Frank Baldino, Jr.................................. 8,334(11) *
Paul A. Bartlett................................... 149,485(12) *
C. Peter W. Booth ................................. 2,875,081(13) 14.93%
Gary E. Costley.................................... 11,667(14) *
Edith W. Martin.................................... 3,334(15) *
Charles A. Sanders................................. 3,334(16) *
All Current Directors and Executive Officers as a
group (14 persons)................................ 4,015,465(17) 20.32%
</TABLE>
*Less than one percent.
- ----------------
(1) Gives effect to the shares of Common Stock issuable within 60 days of
January 31, 1999 upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date. Unless
otherwise indicated, the persons named in the table have sole voting and
sole investment power with respect to all shares shown as being
beneficially owned. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and includes voting
and investment power with respect to shares.
(2) All data in this Proxy Statement regarding the ownership of the Company's
Common Stock by Corning is based on the Schedule 13G filed by such person
on July 8, 1998.
-5-
<PAGE>
(3) Merrill Lynch & Co. Inc. filed a Schedule 13G with respect to the
Company's Common Stock on February 4, 1999. All data in this Proxy
Statement regarding such ownership is based on such Schedule 13G. Merrill
Lynch & Co., Inc. shares voting and dispositive power over all the
indicated shares. Merrill Lynch Growth Fund shares voting and dispositive
power over 1,500,000 of the indicated shares.
(4) D.E. Shaw Investment Group, L.P. shares voting and dispositive power over
all the listed shares with David Shaw. All data in this Proxy Statement
regarding the ownership of the Company's Common Stock by D.E. Shaw
Investment Group, L.P. and David Shaw is based on the Schedule 13G filed
by such persons on February 9, 1999.
(5) Wellington Management Company, LLP filed a Schedule 13G with respect to
the Company's Common Stock on February 8, 1999. All data in this Proxy
Statement regarding such ownership is based on such Schedule 13G.
Wellington Management Company, LLP shares voting power with respect to
889,900 of the indicated shares, and shares dispositive power over all of
the indicated shares.
(6) Includes 15,000 shares held by Dr. Mollica's wife and children, although
Dr. Mollica disclaims beneficial ownership of such shares. Includes 78,748
shares of Pharmacopeia Common Stock subject to options exercisable within
60 days of January 31, 1999.
(7) Includes 33,019 shares of Pharmacopeia Common Stock subject to options
exercisable within 60 days of January 31, 1999.
(8) Includes 24,000 shares held by David Baer as custodian for Dr. Sigal's
children, although Dr. Sigal disclaims beneficial ownership of such
shares. Includes 33,019 shares of Pharmacopeia Common Stock subject to
options exercisable within 60 days of January 31, 1999.
(9) Includes 39,165 shares of Pharmacopeia Common Stock subject to options
exercisable within 60 days of January 31, 1999.
(10) Includes 99,119 shares of Pharmacopeia Common Stock subject to options
exercisable within 60 days of January 31, 1999.
(11) Includes 8,334 shares of Pharmacopeia Common Stock subject to options
exercisable within 60 days of January 31, 1999.
(12) Includes 11,985 shares of Pharmacopeia Common Stock subject to options
exercisable within 60 days of January 31, 1999.
(13) All the indicated shares of Pharmacopeia Common Stock are held by
Corning. The director is affiliated with Corning, but the director
disclaims beneficial ownership of such shares.
(14) Includes 11,667 shares of Pharmacopeia Common Stock subject to options
exercisable within 60 days of January 31, 1999.
(15) Includes 3,334 shares of Pharmacopeia Common Stock subject to options
exercisable within 60 days of January 31, 1999.
(16) Includes 3,334 shares of Pharmacopeia Common Stock subject to options
exercisable within 60 days of January 31, 1999.
(17) Includes 499,324 shares of Pharmacopeia Common Stock subject to options
exercisable within 60 days of January 31, 1999.
On June 12, 1998, the Company acquired MSI. Pursuant to such transaction,
Corning's stock in MSI was converted into 2,875,081 shares of the Company's
Common Stock.
Board Meetings and Committees
The Board of Directors of the Company held a total of six meetings during
1998. The standing committees of the Board of Directors are the Audit
Committee and the Compensation Committee.
The Audit Committee's current members are Paul A. Bartlett, C. Peter W.
Booth and Edith W. Martin. This committee is primarily responsible for
approving the services performed by the Company's independent auditors and for
reviewing and evaluating the Company's accounting principles and its system of
internal accounting controls. The Audit Committee met two times during 1998.
The Compensation Committee's current members are Frank Baldino, Jr., Gary E.
Costley and Charles A. Sanders. The Compensation Committee reviews and
recommends to the Board the compensation of all executive officers. The
Compensation Committee met four times during 1998.
No current director attended fewer than 75% of the aggregate of the total
number of meetings of the Board of Directors (during the period that he or she
served) and the total number of meetings held by all committees of the Board
of Directors on which he or she served (during the period that he or she
served).
Board Compensation
Non-employee directors are reimbursed for expenses incurred in connection
with performing their respective duties as directors of the Company. In
addition, the Company has agreed to pay directors Gary E. Costley, C. Peter W.
Booth, Frank Baldino, Jr., Edith W. Martin, Paul A. Bartlett and Charles A.
Sanders and any other non-employee director who becomes a member of the Board
of Directors for the first time after 1995 a cash fee of $1,500 for each
meeting of the Board of Directors or a committee thereof attended by such
director. Each non-employee director participates in the 1995 Director Stock
Option Plan. Each individual who becomes a non-employee Board member for the
first time on or after October 26, 1995 will automatically be granted an
-6-
<PAGE>
option to purchase 10,000 shares of Common Stock on the date of his or her
election or appointment to the Board of Directors, provided such individual
has not been in the prior employ of the Company. Thereafter, at each annual
stockholders meeting, each non-employee director with at least six months of
service on the Board of Directors reelected to the Board will automatically be
granted an option to purchase 5,000 shares of Common Stock.
Employment Agreements
Effective November 1, 1997, the Company and Joseph A. Mollica entered into a
three-year employment agreement, subject to extension by mutual agreement,
whereby Dr. Mollica is employed as Chairman of the Board of Directors and
Chief Executive Officer. Pursuant to his agreement, Dr. Mollica receives a
minimum annual base salary of $365,000, and is eligible to receive a
discretionary bonus of up to 35% of his base salary. In the event the Company
terminates Dr. Mollica's employment without "cause", as defined in his
agreement, the Company will continue to pay as severance benefits his base
salary, bonus and benefits for the earlier of (i) fifteen months or (ii) Dr.
Mollica's obtaining full-time employment. Also, upon an acquisition of the
Company, if the successor acquirer fails to assume or observe the obligations
of the agreement or if Dr. Mollica's employment is subsequently terminated
without cause, Dr. Mollica will be entitled to full severance benefits.
In June 1996, the Company and Stephen A. Spearman entered into an agreement
whereby Dr. Spearman is employed as Executive Vice President of Operations.
Pursuant to his agreement, Dr. Spearman receives an annual base salary of
$225,000 and is eligible for an annual bonus of up to 20% of his annual base
salary to be awarded at the discretion of the Board of Directors. The
agreement does not specify a term of employment.
In June 1993, the Company and John J. Baldwin entered into an agreement
whereby Dr. Baldwin is employed as Vice President of Chemistry. Pursuant to
his agreement, Dr. Baldwin receives an annual base salary of $210,000 and is
eligible for an annual bonus of up to 20% of his annual base salary to be
awarded at the discretion of the Board of Directors. Also pursuant to his
agreement, the Company agreed to lend Dr. Baldwin $10,000 per year, up to a
maximum of $50,000 at an interest rate equal to the minimum rate required to
avoid imputation of income under applicable tax regulations. Currently, there
are no loans outstanding from the Company to Dr. Baldwin. The agreement does
not specify a term of employment. In the event the Company terminates Dr.
Baldwin's employment without "cause" as defined in his agreement the Company
will pay his annual salary for the earlier of (i) one year after the date of
termination and (ii) Dr. Baldwin's obtaining full-time employment.
In November 1993, the Company and Dr. Nolan H. Sigal entered into an
employment agreement whereby Dr. Sigal is employed as Vice President of
Biology. Pursuant to his agreement, Dr. Sigal receives an annual base salary
of $192,000 and is eligible for an annual bonus of up to 20% of his annual
base salary to be awarded at the discretion of the Board of Directors. The
agreement does not specify a term of employment. In the event the Company
terminates Dr. Sigal's employment without "cause", as defined in his
agreement, the Company will continue to pay his base salary until the earlier
of (i) one year after termination and (ii) Dr. Sigal's obtaining full-time
employment.
Effective December 17, 1998, the Company and Lewis J. Shuster entered into
an agreement whereby the Company will be obligated to make severance payments
under certain circumstances. In the event the Company terminates Mr. Shuster's
employment without "cause", as defined in his agreement, the Company will
continue to pay as severance benefits his base salary for the earlier of (i)
twelve months or (ii) Mr. Shuster's obtaining full-time employment. Also, upon
an acquisition of the Company, if the acquiror fails to assume the obligations
of the Company under the agreement or if Mr. Shuster's employment is
terminated without cause within 12 months of the acquisition, Mr. Shuster will
be entitled to a lump sum payment by the Company of the severance benefits
described above. The agreement does not specify a base salary or term of
employment.
-7-
<PAGE>
PROPOSAL TWO:
PROPOSAL TO AMEND THE 1994 INCENTIVE STOCK PLAN TO
INCREASE THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
THEREUNDER TO 3,700,000 SHARES
The Company's 1994 Incentive Stock Plan (the "Incentive Plan") was initially
adopted by the Board of Directors on April 20, 1994 and initially approved by
the stockholders of the Company on February 25, 1995, with a total of 750,000
shares of Common Stock reserved for issuance under the Incentive Plan. In
1996, 1997 and 1998, the Board of Directors and stockholders approved
cumulative increases of 2,000,000 shares authorized for issuance under the
Incentive Plan. Subject to stockholder approval, in January 1999, the Board of
Directors approved an additional increase of 950,000 shares authorized for
issuance under the Incentive Plan, increasing the total number of shares of
Common Stock authorized for issuance thereunder from 2,750,000 to 3,700,00
shares. This proposed increase in the total number of shares of Common Stock
available for issuance under the Incentive Plan equals approximately 4.9% of
the total outstanding shares of Common Stock on the Record Date. A summary
description of the Incentive Plan, as proposed to be amended, is attached as
Exhibit A to this Proxy Statement. Said summary is qualified in its entirety
by the prospectus covering the shares available for issuance pursuant to the
Incentive Plan, and by the full text of the Incentive Plan, copies of which
may be obtained by the Company's stockholders upon request to the Office of
the Secretary of the Company.
As of January 31, 1999, options to purchase 2,106,123 shares of Common Stock
(net of exercised and terminated options) had been granted under the Incentive
Plan, 458,178 options remained available for future grants and 185,699 options
had been exercised.
The Board of Directors believes that this proposed increase in the number of
share authorized for issuance under the Incentive Plan is in the best interest
of the Company. The Board of Directors believes that this increase will
provide an adequate reserve of shares for issuance under the Incentive Plan
for the next two years (barring any acquisition, recapitalization or similar
event), which is necessary to enable the Company to compete successfully with
other companies to attract and retain valuable employees.
The Board of Directors recommends that the Company's stockholders vote FOR
the increase in the number of shares authorized for issuance under the
Incentive Plan to 3,700,000 shares of Common Stock.
-8-
<PAGE>
OTHER INFORMATION REGARDING THE COMPANY
Performance Graph
The following is a line graph comparing the cumulative total return to
stockholders of Pharmacopeia Common Stock from December 5, 1995 (the date of
Pharmacopeia's initial public offering ) through December 31, 1998 with the
cumulative total return over such period of (i) the Nasdaq Stock Market (U.S.
Companies) Index and (ii) the Dow Jones Biotechnology Industry Group Index.
The information contained in the Performance Graph shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
filing under the Securities Act of 1933, as amended (the "Securities Act"), or
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), except
to the extent that Pharmacopeia specifically incorporated it by reference to
any such filing.
[Pharmacopeia, Inc. Graph appears here.]
-9-
<PAGE>
EXECUTIVE COMPENSATION
Compensation Tables
Summary Compensation Table. The following table sets forth the compensation
awarded to, earned by or paid to the Chief Executive Officer and each of the
other four most highly compensated executive officers of Pharmacopeia (the
"Named Executive Officers") for services rendered to Pharmacopeia in each of
the three fiscal years ended December 31, 1998:
<TABLE>
<CAPTION>
Annual Compensation (1) Long Term Compensation Awards (2)
--------------------------- -------------------------------------
Restricted Securities All Other
Name and Principal Stock Awards Underlying Compensation
Position Year Salary ($) Bonus ($) ($)(3) Options (#) ($)
- ------------------------ ---- ---------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Mollica....... 1998 397,917 135,000 -- 50,000
President and Chief 1997 362,833 140,000 -- 50,000
Executive Officer 1996 336,875 135,000 -- 55,000
John J. Baldwin......... 1998 249,333 45,000 -- 15,000
Chief Science and 1997 241,083 50,000 -- 20,000
Technology Officer 1996 230,250 50,000 -- 25,000
Nolan H. Sigal.......... 1998 234,167 38,000 -- 15,000
Senior Vice President of 1997 223,667 40,000 -- 20,000
Drug Discovery 1996 208,250 50,000 -- 25,000
Stephen A. Spearman..... 1998 248,750 55,000 -- 15,000
Executive Vice 1997 234,167 60,000 -- 15,000 31,582(5)
President, Operations 1996 87,837(4) 55,000(6) -- 50,000 121,262(5)
Lewis J. Shuster........ 1998 212,500 52,000 -- 22,000
President and Chief
Operating 1997 199,008 50,000 -- 20,000
Officer--Pharmacopeia
Labs 1996 186,925 50,000 -- 25,000
</TABLE>
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(1) The value of certain perquisites or personal benefits is not included in
the amounts disclosed because it did not exceed for any Named Executive
Officer the lesser of either $50,000 or 10% of total annual salary and
bonus reported for the Named Executive Officer.
(2) The Company did not grant any stock appreciation rights or make any long-
term incentive plan payments to any Named Executive Officer in 1996, 1997
or 1998.
(3) During 1996, 1997 and 1998 no shares of restricted Common Stock were
awarded or sold to the Named Executive Officers. As of December 31, 1998,
Dr. Mollica held 202,500 shares of restricted Common Stock with an
aggregate value of $1,923,750, Dr. Baldwin held 135,750 shares of
restricted Common Stock with an aggregate value of $1,289,625, Dr. Sigal
held 120,400 shares of restricted Common Stock with an aggregate value of
$1,143,800, and Dr. Spearman and Mr. Shuster held no restricted Common
Stock.
(4) Dr. Spearman became employed by the Company in August 1996 at an annual
salary of $225,000.
(5) Represents relocation expenses.
(6)Represents a $25,000 signing bonus and a $30,000 performance bonus.
Option Grants in Last Fiscal Year. The following table sets forth each grant
of stock options made during the year ended December 31, 1998 to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rate of
% of Total Stock Appreciation for
Options Options Granted Option Term(2)
Granted to Employees in Exercise Expiration -----------------------------
Name #(1) Fiscal Year Price Date 5% 10%
- ------------------------ ------- --------------- -------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Mollica....... 50,000 4% $12.88 7/30/08 $ 404,843 $ 1,025,989
John J. Baldwin......... 15,000 1% $12.88 7/30/08 121,500 307,916
Nolan H. Sigal.......... 15,000 1% $12.88 7/30/08 121,500 307,916
Stephen A. Spearman..... 15,000 1% $12.88 7/30/08 121,500 307,916
Lewis J. Shuster........ 22,000 2% $12.88 7/30/08 178,131 451,435
</TABLE>
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(1) The listed options become exercisable as follows: one-fourth of the total
number of shares subject to the options are exercisable one year from the
grant date and an additional one forty-eighth of the total number of
shares are exercisable each full month thereafter based on the optionee's
continuing to be employed by the Company.
(2) Potential realizable value is based on an assumption that the stock price
appreciates at the annual rate shown (compounded annually) from the date
of grant until the end of the ten-year option term. These numbers are
calculated based on the requirements promulgated by the Securities and
Exchange Commission and do not reflect the Company's estimate of future
stock price growth.
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<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table sets forth for each of the Named Executive
Officers options exercised during 1998 and the fiscal year-end value of
unexercised options.
<TABLE>
<CAPTION>
Shares Value of Unexercised In-the-
Acquired Number of Unexercised Money Options at Year-End
on Value Options at Year-End (#) ($)(1)
Exercise Realized ------------------------- --------------------------------
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ -------- -------- ----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Mollica....... -- -- 70,935 104,065 $ 147,986 $ 17,214
John J. Baldwin......... -- -- 29,738 37,762 55,491 6,459
Nolan H. Sigal ......... -- -- 29,738 37,762 55,491 6,459
Steven A. Spearman...... -- -- 35,103 44,897 0 0
Lewis J. Shuster........ 400 $3,460 95,525 45,075 643,428 9,044
</TABLE>
- --------
(1) Market value of underlying securities at exercise date or year-end, as the
case may be, minus the exercise price.
Report of the Compensation Committee
The following is a report of the Compensation Committee of the Company
describing the compensation policies and rationales applicable to the
Company's executive officers with respect to the compensation paid to such
executive officers for the year ended December 31, 1998. The information
contained in this report shall not be deemed to be "soliciting material" or to
be "filed" with the Securities and Exchange Commission nor shall such
information be incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into any such filing.
The Compensation Committee (the "Committee") of the Board of Directors
reviews and approves the Company's executive compensation policies. The
following is the report of the Committee describing the compensation policies
and rationales applicable to the Company's executive officers with respect to
the compensation paid to such executive officers for the fiscal year ended
December 31, 1998.
Compensation Philosophy
The Company's philosophy in setting its compensation policies for executive
officers is to maximize stockholder value over time. The primary goal of the
Company's executive compensation program is therefore to closely align the
interests of the executive officers with those of the Company's stockholders.
To achieve this goal, the Company seeks to offer its executive officers
competitive compensation based upon their performance, and the performance of
the Company. The executive compensation program is designed to attract and
retain executive talent that contributes to the Company's long-term success,
to reward the achievement of the Company's short-term and long-term strategic
goals, to recognize and reward individual contributions to the Company's
performance, and to link executive officer compensation and stockholder
interests through equity-based plans. The Company currently uses three
integrated components -- Base Salary, Variable Annual Incentives and Long-Term
Incentives -- to meet these goals.
Base Salary
The base salary component of the total compensation is designed to
compensate executives competitively within the industry. The Committee
reviewed and approved fiscal 1998 base salaries for the Chief Executive
Officer and other executive officers. Base salaries were established by the
Committee based upon competitive
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<PAGE>
compensation data, the executive's job responsibilities, level of experience,
individual performance and contribution to the business. Executive officer
base salaries have been targeted at or above the average rates paid by
competitors in similar size companies to enable the Company to attract,
motivate, reward and retain highly skilled executives. In order to evaluate
the Company's competitive posture in the industry, the Committee reviewed and
analyzed the compensation packages, including base salary levels, offered by
other biotechnology and pharmaceutical companies. The competitive information
was obtained from surveys prepared by consulting companies or industry
associations (e.g., the Radford Biotechnology Compensation survey and the Top
Five Data Services Report on Executive Compensation in the Biopharmaceutical
Industry). In making base salary decisions, the Committee exercised its
discretion and judgment based upon these factors. No specific formula was
applied to determine the weight of each factor.
Variable Annual Incentives
Variable incentive bonuses for executive officers are intended to reflect
the Committee's belief that a portion of the compensation of each executive
officer should be contingent upon the performance of the Company as well as
the individual contribution of each executive officer. To carry out this
philosophy, the Company has implemented a compensation policy (the
"Compensation Policy") which compensates officers in the form of annual
bonuses which are paid in cash. The Committee established target bonuses for
each executive officer relative to the officer's base salary. The Compensation
Policy is intended to motivate and reward executive officers by directly
linking the amount of any cash bonus to specific Company-based performance
targets and specific individual-based performance evaluations. The Company-
based performance goals are tied to different indicators of the Company's
performance, such as achievement of revenue, research and development,
manufacturing, and other operating objectives. These Company-based performance
goals vary from year to year and are somewhat subjective in nature. The
individual officer's performance goals are taken into account and are tied to
different indicators of the individual officer's performance (such as having
achieved a research and development project milestone) and, except in the case
of the Chief Executive Officer, are based upon the evaluation of the Chief
Executive Officer. The Chief Executive Officer's achievement of individual
performance goals is determined by the Committee. The Committee evaluates the
achievement level of the Company's annual goals and approves a performance
rating relative to the goals. At the beginning of each year, the Company's
objectives are assigned a relative weighting factor to assist in the priority
setting and subsequent evaluation of performance against objectives that is
conducted at the end of the year. This evaluation is subjective and is
influenced by the Committee's perception of the importance of the various
corporate goals. The aggregate amount of the bonus pool can range from 50-150%
of the total individual target amounts based upon achievement of individual
goals, provided that if less than 80% of the annual Company objectives are met
no bonus amounts will be paid. For 1998, the Board of Directors awarded the
Company's executive officers incentive bonuses based upon the officers and the
Company having less than fully achieved the goals and objectives set for 1998
performance. The Committee believes that the Company's Compensation Policy
provides an excellent link between the Company's performance and the
incentives paid to executives.
Long-Term Incentives
The Committee provides the Company's executive officers with long-term
incentive compensation through grants of stock options under the Company's
1994 Incentive Stock Plan and the opportunity to purchase stock under the 1995
Employee Stock Purchase Plan (the "Purchase Plan"). The Company's Board of
Directors believes that stock options provide the Company's executive officers
with the opportunity to purchase and maintain an equity interest in the
Company and to share in the appreciation of the value of the Company's Common
Stock. The Board believes that stock options directly motivate an executive to
maximize long-term stockholder value. The options also utilize vesting periods
(generally four years) that encourage key executives to continue in the employ
of the Company. All options granted to executive officers to date have been
granted at the fair market value of the Company's Common Stock on the date of
grant. The Board considers the grant of each option subjectively, considering
factors such as the individual performance of the executive officer and the
anticipated contribution of the executive officer to the attainment of the
Company's long-term strategic
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<PAGE>
performance goals. Long-term incentives granted in prior years are also taken
into consideration. The Compensation Committee has not yet made a
determination with respect to long-term incentive grants based on 1998
performance.
The Company established the Purchase Plan both to encourage employees to
continue in the employ of the Company and to motivate employees through
ownership interest in the Company. Under the Purchase Plan, employees,
including officers, may have up to 10% of their earnings withheld for
purchases of Common Stock on certain dates specified by the Board. The price
of Common Stock purchased will be equal to 85% of the lower of the fair market
value of the Common Stock on the date of commencement of participation in each
six-month offering period or on each specified purchase date.
Chief Executive Officer Compensation
The compensation of the Chief Executive Officer is reviewed annually on the
same basis as discussed above for all executive officers. Dr. Mollica's base
salary for 1998 was set at $390,000. In November 1998, Dr. Mollica's base
salary was raised to $450,000 in recognition of the additional
responsibilities for the MSI business and employee base. Dr. Mollica's base
salary was not raised in March 1999 along with all other employees. Dr.
Mollica's base salary was established in part by comparing the base salaries
of chief executive officers at other biotechnology and pharmaceutical
companies of similar size. In 1998, Dr. Mollica was granted options to
purchase 50,000 shares of Common Stock based on 1997 performance. The
Compensation Committee has not yet made a determination with respect to option
grants to Dr. Mollica based on 1998 performance. Under the Compensation
Policy, Dr. Mollica received a $135,000 bonus for 1998 performance. Dr.
Mollica's total compensation was based on the Company's accomplishments and
his contribution thereto, including (i) attracting new executive talent to the
Company, (ii) signing a Collaboration and License Agreement with Schering
Plough, (iii) executing the MSI merger and taking a leadership role in the
integration of the two companies and (iv) the Company's successful
collaboration agreements with Schering AG and Pharmacia & Upjohn.
Section 162(m)
The Board has considered the potential future effects of Section 162(m) of
the Internal Revenue Code on the compensation paid to the Company's executive
officers. Section 162(m) disallows a tax deduction for any publicly held
corporation for individual compensation exceeding $1.0 million in any taxable
year for any of the executive officers named in the proxy statement, unless
compensation is performance-based. The Company has adopted a policy that,
where reasonably practicable, the Company will seek to qualify the variable
compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m).
In approving the amount and form of compensation for the Company's executive
officers, the Committee will continue to consider all elements of the cost to
the Company of providing such compensation, including the potential impact of
Section 162(m).
Respectfully submitted by:
COMPENSATION COMMITTEE
Gary E. Costley
Frank Baldino, Jr.
Charles A. Sanders
Section 16(a) Beneficial Ownership Reporting Compliance
On the basis of reports and representations submitted by or on behalf of the
directors, executive officers and ten percent stockholders of the Company, all
Forms 3, 4 and 5 showing ownership of and change of ownership in the Company's
equity securities during 1998 were timely filed with the Securities and
Exchange Commission as required by Section 16(a) of the Exchange Act, except
that a Form 4 was not filed until March of 1999 to
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<PAGE>
reflect the conversion of MSI options held by Dr. Bartlett to Pharmacopeia
options upon consummation of the MSI acquisition, and a Form 3 in respect of
each of the Company's executive officers Richard J. Walsh, Kenneth P. McCarthy
and Ronald Goldstein that was due by June 22, 1998 was not filed until August
6, 1998.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 1998 were Gary E. Costley,
Frank Baldino, Jr. and Charles A. Sanders. No such member of the Compensation
Committee was a former or current officer or employee of the Company.
Certain Transactions
On January 31, 1999, Michael J. Savage entered into a Consulting Agreement
with the Company. The term of the Consulting Agreement begins on January 31,
1999 and continues until August 31, 1999. This Agreement may be extended for
an additional six month term upon mutual written consent of the parties. As
compensation for the services contemplated in the Consulting Agreement, and as
contemplated by Mr. Savage's Employment Agreement with the Company dated
November 30, 1995, as amended, certain unvested incentive stock options
granted to Mr. Savage pursuant to the terms of such Employment Agreement which
provide Mr. Savage the right to purchase 32,532 shares of Common Stock of the
Company at an exercise price of $1.89 per share shall continue to vest during
the term of the Consulting Agreement and shall become fully vested on August
31, 1999. During 1998, Mr. Savage was a director and executive officer of the
Company.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed Proxy Card to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Princeton, New Jersey
Dated: April 9, 1999
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<PAGE>
EXHIBIT A
DESCRIPTION OF THE 1994 PHARMACOPEIA INCENTIVE STOCK PLAN
General. Pharmacopeia's 1994 Incentive Stock Plan (the "Incentive Plan") was
initially adopted by the Board of Directors on April 20, 1994 and initially
approved by the stockholders on February 25, 1995. The Incentive Plan
authorizes the grant of stock options, stock appreciation rights and stock
purchase rights. Options granted under the Incentive Plan may be either
"incentive stock options" as defined in Section 422 of the Code, or
nonstatutory stock options, as determined by the Administrator (defined
below). A total of 750,000 shares of Pharmacopeia Common Stock was initially
reserved for issuance under the Incentive Plan. In 1996, 1997 and 1998, the
Board of Directors and stockholders approved cumulative increases of 2,000,000
shares authorized for issuance under the Incentive Plan, increasing the number
of shares of Pharmacopeia Common Stock authorized for issuance thereunder from
750,000 to 2,750,000 shares. Stockholder approval is now being sought for an
amendment of the Incentive Plan to increase by 950,000 the number of shares
authorized for issuance under the Incentive Plan to 3,700,000. The Board of
Directors believes that the proposed amendment increasing the number of shares
reserved for issuance under the Incentive Plan is in the best interests of
Pharmacopeia. The Board of Directors believes that this proposed increase will
provide an adequate reserve of shares for issuance under the Incentive Plan
for the next two years (barring any acquisition, recapitalization or similar
event), which is necessary to enable Pharmacopeia to compete successfully with
other companies to attract and retain valuable employees.
Purpose. The general purpose of the Incentive Plan is to attract and retain
the best available personnel, to provide additional incentive to employees and
consultants and to promote the success of Pharmacopeia's business.
Administration. The "Primary Committee" administers the Incentive Plan for
all employees subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Primary Committee consists of two or more
non-employee directors appointed by the Board of Directors. With respect to
all other participants in the Incentive Plan, the Board of Directors may
either administer the Incentive Plan or appoint a committee (the "Secondary
Committee") from among its members, including the Primary Committee, to
administer the Incentive Plan. A subcommittee of the Primary Committee or the
Secondary Committee which has been approved by the Board of Directors may be
delegated those administrative functions under the Incentive Plan which have
been authorized to be performed by the Primary or Secondary Committee, as the
case may be. The Board of Directors, Primary Committee, Secondary Committee or
an approved subcommittee thereof, as applicable, are collectively referred to
herein as the "Administrator". Subject to the other provisions of the
Incentive Plan, the Administrator has the authority to: (i) grant options and
rights; (ii) interpret the Incentive Plan; (iii) select the persons to whom
options and rights are to be granted; (iv) determine the number of shares to
be made subject to each option and right; (v) prescribe, amend and rescind
rules and regulations relating to the Incentive Plan; (vi) prescribe the terms
and conditions of each option and right (including the exercise price, whether
an option will be classified as an incentive stock option or a nonstatutory
stock option and the provisions of the stock option or stock purchase
agreement to be entered into between Pharmacopeia and the grantee); and (vii)
to make all other determinations deemed necessary or advisable for the
administration of the Incentive Plan. All decisions, interpretations and other
actions of the Administrator shall be final and binding on all holders of
options and on all persons deriving their rights therefrom.
Eligibility. The Incentive Plan provides that options and rights may be
granted to Pharmacopeia's employees and consultants (as such terms are defined
in the Incentive Plan). Incentive stock options may be granted only to
employees. At January 31, 1999, approximately 546 employees of Pharmacopeia
were eligible to participate in the Incentive Plan, as proposed to be amended.
It is not possible to state at this time whether a particular executive
officer, all current executive officers as a group, a particular nominee for
director or all non-executive officers as a group will be granted Options
under the Incentive Plan or the benefit or value of such Options, since these
matters will be determined by the Administrator based on each participant's
level of responsibility, compensation and contribution to Pharmacopeia's
success. As of January 31, 1999, Pharmacopeia
A-1
<PAGE>
had granted options pursuant to the Incentive Plan to purchase an aggregate of
2,653,453 shares at exercise prices ranging from $0.48 to $26.75 per share.
(For information regarding options granted under the Incentive Plan to certain
Pharmacopeia Named Executive Officers of Pharmacopeia, see "Executive
Compensation" in the Proxy Statement). As of that date, Pharmacopeia had also
granted options pursuant to the Incentive Plan to the following groups or
persons: all current executive officers as a group had received options to
purchase 534,500 shares at exercise prices ranging from $0.48 to $21.50 per
share and all current employees, including all current officers who are not
executive officers, as a group, had received options under the Incentive Plan
to purchase 1,789,878 shares at exercise prices ranging from $0.48 to $26.75
per share. The closing price of Pharmacopeia Common Stock as reported on the
Nasdaq National Market for January 31, 1999 was $10.938.
Section 162(m) Limitations. Section 162(m) of the Code limits the
deductibility of compensation paid to certain executive officers of
Pharmacopeia. To maximize Pharmacopeia's deduction attributable to options
granted to such persons, the Incentive Plan requires that no participant may
receive options, separately exercisable stock appreciation rights and stock
purchase rights for more than 400,000 shares of Pharmacopeia Common Stock in
any one year.
Terms and Conditions of Options. Each option granted under the Incentive
Plan is evidenced by a written stock agreement between the optionee and
Pharmacopeia and is subject to the following terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of an
option to purchase shares of Pharmacopeia Common Stock at the time the option
is granted. The exercise price under an incentive stock option must not be
less than 100% of the fair market value of the Pharmacopeia Common Stock on
the date the option is granted and the exercise price of a nonstatutory stock
option must not be less than 85% of the fair market value of the Pharmacopeia
Common Stock on the date the option is granted. However, any optionee who owns
more than 10% of the combined voting power of all classes of outstanding stock
of Pharmacopeia (a "10% Stockholder") is not eligible for the grant of an
option unless the exercise price of the option is at least 110% of the fair
market value of the Pharmacopeia Common Stock on the date of grant. Generally,
the fair market value shall be the closing sale price for such stock on the
date of determination (or the mean of the bid and asked prices, if no sales
were reported) as quoted on the Nasdaq National Market as reported in The Wall
Street Journal.
(b) Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement and generally may
be made by cash, check, money order, promissory note, certain other shares of
Pharmacopeia Common Stock owned by the optionee, delivery of an exercise
notice together with irrevocable instructions to a broker to deliver the
exercise price to Pharmacopeia from the sale or loan proceeds (a "cashless
exercise"), delivery of an irrevocable subscription agreement which requires
full payment within twelve months, any combination of the foregoing methods,
or any other consideration to the extent permitted under applicable law.
(c) Term of the Option. Each stock option agreement will specify the type of
option, the term of the option and the date when the option is to become
exercisable. However, the term of an option granted under the Incentive Plan
will be no longer than ten years from the date of grant in the case of an
incentive stock option and ten years and one day in the case of a nonstatutory
stock option. Moreover, in the case of an option granted to a 10% Stockholder,
the term of an incentive stock option will be for no more than five years from
the date of grant and the term of a nonstatutory stock option will be no more
than five years and one day from the date of grant.
(d) Termination of Employment or Consulting Relationship. If an optionee's
employment or consulting relationship terminates for any reason (other than
death or permanent disability), the optionee may exercise his or her option,
but only within thirty days (or such other period of time as is determined by
the Administrator) from the date of such termination, and only to the extent
that the optionee was entitled to exercise it at the date of such termination
(and in no event later than the expiration of the term of such option as set
forth in the option agreement). To the extent that the optionee was not
entitled to exercise an option at the date of such termination,
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<PAGE>
and to the extent that the optionee does not exercise such option (to the
extent otherwise so entitled) within the time permitted, the option shall
terminate.
(e) Permanent Disability and Death. If an optionee is unable to continue
employment or consulting with Pharmacopeia as a result of disability (as
defined in Section 22(e)(3) of the Code) or death, then all his or her options
under the Incentive Plan shall expire within six months after the date of
termination of the optionee's employment or consulting relationship (or such
other period of time determined by the Administrator) but in no event later
than the expiration of the term of such option as set forth in the option
agreement. The optionee, executor or other legal representative of the
optionee may exercise all or part of his or her option at any time before such
expiration date to the extent that such option was exercisable at the time of
termination of employment. To the extent that the options were not exercisable
at the date of such termination, and to the extent that the options are not
exercised (to the extent otherwise permissible) within the time permitted, the
options shall terminate.
(f) Misconduct. If an optionee's employment or consultancy terminates due to
misconduct, all outstanding options terminate immediately. Misconduct as
defined in the Incentive Plan includes, but is not limited to, (i) acts of
fraud, embezzlement or dishonesty, (ii) unauthorized use or disclosure of
confidential information or trade secrets of Pharmacopeia or (iii) other
intentional acts of misconduct by the optionee that harm Pharmacopeia.
(g) Value Limitation. If the aggregate fair market value of all shares of
Pharmacopeia Common Stock subject to an optionee's incentive stock options
which are exercisable for the first time during any calendar year exceeds
$100,000, the excess options shall be treated as nonstatutory stock options.
Nontransferability of Options and Stock Purchase Rights. During a
participant's lifetime, his or her options and rights shall be exercisable
only by the participant and shall not be transferable other than by will or
laws of descent and distribution.
Stock Appreciation Rights. A stock appreciation right granted in connection
with an option entitles the optionee to exercise the stock appreciation right
by surrendering to Pharmacopeia unexercised the corresponding portion of the
related option. In exchange, the optionee receives from Pharmacopeia an amount
equal to the excess of the fair market value of the Pharmacopeia Common Stock
covered by the surrendered portion of the related option on the date of
surrender of the related option over the exercise price of the related option.
When a stock appreciation right granted in connection with an option is
exercised, the related option, to the extent surrendered, ceases to be
exercisable. A stock appreciation right granted in connection with an option
remains exercisable until, and expires no later than, the date on which the
related option ceases to be exercisable or expires.
With respect to employees subject to Section 16 of the Exchange Act, the
Administrator may grant limited stock appreciation rights in connection with
an option. The limited stock appreciation rights may only be exercised upon
the occurrence of a hostile take-over (as defined by the Incentive Plan). In
the event of a hostile take-over, each limited stock appreciation right that
has been held for at least six months may be exercised for thirty days after
the hostile take-over for a cash distribution equal to the excess of (i) the
take-over price for the shares subject to the related option over (ii) the
aggregate exercise price payable for such shares.
Pharmacopeia's obligation arising upon the exercise of a stock appreciation
right may be paid in Pharmacopeia Common Stock or in cash, or any combination
thereof, as the Administrator may determine.
Stock Purchase Rights. A stock purchase right gives the purchaser a period
of no longer than six months from the date of grant to purchase Pharmacopeia
Common Stock. A stock purchase right is accepted by the execution of a
restricted stock purchase agreement between Pharmacopeia and the purchaser,
accompanied by the payment of the purchase price for the shares. Unless the
Administrator determines otherwise, the restricted stock purchase agreement
shall give Pharmacopeia a repurchase option exercisable upon the voluntary or
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involuntary termination of the purchaser's employment or consulting
relationship with Pharmacopeia for any reason (including death or disability).
The purchase price for any shares repurchased by Pharmacopeia shall be the
original price paid by the purchaser. The repurchase option lapses at a rate
determined by the Administrator.
Stock Withholding. The Administrator may allow participants in the Incentive
Plan to satisfy their withholding obligations, if applicable, by either
electing to have a certain number of shares of stock which would then be
received pursuant to the exercise of the option or the vesting of such shares
withheld by Pharmacopeia or by delivering to Pharmacopeia the number of shares
of stock required to be withheld.
Adjustment Upon Change in Capitalization. Subject to any required action by
the stockholders of Pharmacopeia, in the event that the stock of Pharmacopeia
is changed by reason of any stock split, reverse stock split, stock dividend,
combination, reclassification or other increase or decrease in the number of
issued shares of Pharmacopeia Common Stock effected without receipt of
consideration by Pharmacopeia, appropriate proportional adjustments will be
made in the number and class of shares of stock under the Incentive Plan, the
number of shares of stock subject to any option or right outstanding under the
Incentive Plan, and the exercise price of any such outstanding option or
right. Any such adjustment will be made by the Administrator, whose
determination shall be conclusive.
Merger or Asset Sale. In connection with any merger, or sale of all or
substantially all of the assets of Pharmacopeia, each outstanding option may
be assumed or an equivalent option substituted by a successor corporation. If
the successor corporation does not assume the option or substitute a
substantially equivalent option, each option will become fully exercisable for
a period of time determined by the Administrator. All options not exercised
before the merger or asset sale will terminate, if not substituted for or
assumed. Any option assumed or substituted for will automatically become fully
exercisable if an optionee's employment or consultancy ends within eighteen
months after the merger or asset sale. Such option will expire at the end of
its term or one year after the involuntary termination, whichever is earlier.
In addition, any repurchase option on Pharmacopeia Common Stock will terminate
and the stock will fully vest upon a merger or asset sale unless the
repurchase options are assigned to the successor corporation. Any such
repurchase option assigned in the merger or asset sale will end and the shares
subject to the repurchase option will immediately vest in full if the
optionee's employment or consultancy ends within eighteen months of the merger
or asset sale.
Change in Control. The Administrator has the discretion to make any
outstanding option fully or partially exercisable upon a change in control, or
condition making any outstanding option fully exercisable on the involuntary
termination of an optionee's employment or consultancy within eighteen months
of the date of the change in control. In addition, the Administrator has the
discretion with respect to stock purchase rights to terminate any repurchase
option and vest the Pharmacopeia Common Stock to which the repurchase option
relates upon a change in control or upon the involuntary termination of an
optionee's employment or consultancy within eighteen months of the date of the
change in control. A change in control means (i) certain changes in the
composition of Pharmacopeia's Board of Directors over a three year period, or
(ii) the acquisition of more than half of the beneficial ownership of
Pharmacopeia by any person or group accomplished by a tender offer which the
Board of Directors does not recommend the stockholders accept.
Amendments, Suspensions and Termination of the Incentive Plan. The Board of
Directors may amend, suspend or terminate the Incentive Plan at any time;
provided, however, that stockholder approval is required for any amendment
which (i) materially increases the number of shares under the Incentive Plan,
(ii) materially increases the maximum number of shares allowed for grants to
any participant, (iii) materially changes the class of persons eligible to
receive grants of options or rights, or (iv) materially increases the benefits
to participants under the Incentive Plan. In any event, the Incentive Plan
will terminate automatically in 2004.
Federal Income Tax Consequences
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to
A-4
<PAGE>
the alternative minimum tax. Upon a disposition of the shares more than two
years after grant of the option and one year after exercise of the option, any
gain or loss is treated as long-term capital gain or loss. If these holding
periods are not satisfied, the optionee recognizes ordinary income at the time
of disposition equal to the difference between the exercise price and the
lower of (i) the fair market value of the shares at the date of the option
exercise or (ii) the sale price of the shares. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% stockholder of Pharmacopeia. Pharmacopeia is
entitled to a deduction in the same amount as the ordinary income recognized
by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes ordinary taxable income generally measured
by the excess of the then fair market value of the shares over the exercise
price. Any taxable income recognized in connection with an option exercise by
an employee of Pharmacopeia is subject to tax withholding by Pharmacopeia.
Pharmacopeia is entitled to a deduction in the same amount as the ordinary
income recognized by the optionee. Upon a disposition of such shares by the
optionee, any difference between the sale price and the optionee's exercise
price, to the extent not recognized as taxable income as provided above, is
treated as long-term or short-term capital gain or loss, depending on the
holding period.
Stock Appreciation Rights. No income will be recognized by a recipient in
connection with the grant of a stock appreciation right. When the stock
appreciation right is exercised, the recipient generally will be required to
include as taxable ordinary income in the year of exercise an amount equal to
the sum of the amount of cash received and the fair market value of any
Pharmacopeia Common Stock received on the exercise. In the case of a recipient
who is also an employee, any income recognized on exercise of a stock
appreciation right will constitute wages for which withholding will be
required. Pharmacopeia will be entitled to a tax deduction in the same amount.
If the optionee receives Pharmacopeia Common Stock upon the exercise of a
stock appreciation right, any gain or loss on the subsequent sale of such
stock will be treated in the same manner as discussed above under
"Nonstatutory Stock Options."
Stock Purchase Rights. Stock purchase rights will generally be taxed in the
same manner as discussed above under "Nonstatutory Stock Options." However,
restricted stock is generally purchased upon the exercise of a stock purchase
right. At the time of purchase, restricted stock is subject to a "substantial
risk of forfeiture" within the meaning of Section 83 of the Code. As a result,
the purchaser will not recognize ordinary income at the time of purchase.
Instead, the purchaser will recognize ordinary income on the dates when a
stock ceases to be subject to a substantial risk of forfeiture. The stock will
generally cease to be subject to a substantial risk of forfeiture when it is
no longer subject to Pharmacopeia's right to repurchase the stock. At such
times, the purchaser will recognize ordinary income measured as the difference
between the purchase price and the fair market value of the stock on the date
the stock is no longer subject to a substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding
period by timely filing an election with the Internal Revenue Service pursuant
to Section 83(b) of the Code. In such event, the ordinary income recognized,
if any, is measured as the difference between the purchase price and the fair
market value of the stock on the date of purchase, and the capital gain
holding period commences on such date. The ordinary income recognized by a
purchaser who is an employee will be subject to tax withholding by
Pharmacopeia. Different rules may apply if the purchaser is also an officer,
director, or 10% stockholder of Pharmacopeia.
The foregoing is only a summary of the effect of federal income taxation
upon optionees, holders of stock purchase rights, and Pharmacopeia with
respect to the grant and exercise of options and stock purchase rights under
the Incentive Plan. It does not purport to be complete, and does not discuss
the tax consequences of the employee's or consultant's death or the provisions
of the income tax laws of any municipality, state or foreign country in which
the employee or consultant may reside.
A-5
<PAGE>
Appendix I
PHARMACOPEIA, INC.
1994 INCENTIVE STOCK PLAN
(as amended and restated as of October 6, 1995)
1. Purposes of the Plan. The purposes of this Incentive Stock Plan are to
--------------------
attract and retain the best available personnel, to provide additional incentive
to the Employees and Consultants of Pharmacopeia, Inc. (the "Company") and to
promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Plan Administrator and as
reflected in the terms of the written option agreement. The Plan Administrator
also has the discretion to grant Stock Purchase Rights.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Change in Control" shall mean a change in ownership or control of the
-----------------
Company effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or related
group of persons (other than the Company or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company), of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
shareholders which the Board does not recommend such shareholders to
accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time such election or nomination was approved
by the Board.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" shall mean the Common Stock of the Company.
------------
(e) "Company" shall mean Pharmacopeia, Inc., a Delaware corporation.
-------
1
<PAGE>
(f) "Consultant" shall mean (i) any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services and (ii) any non-employee member of the Board (other
than an individual serving as a member of the Primary Committee).
(g) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant, as applicable. Continuous Status as an Employee or Consultant shall
not be considered interrupted in the case of sick leave, military leave, or any
other leave of absence approved by the Company; provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(j) "Hostile Take-Over" shall mean a change in ownership of the Company
-----------------
effected through the following transaction:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Company or a person that directly
or indirectly controls, is controlled by, or is under common control with,
the Company) of beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act) of securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
shareholders which the Board does not recommend such shareholders to
accept, and
---
(ii) more than fifty percent (50%) of the securities so acquired are
accepted from persons other than Section 16 Insiders.
(k) "Incentive Stock Option" shall mean an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(l) "Involuntary Termination" shall mean the termination of the service of
-----------------------
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Company for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change
in his or her position with the Company which materially reduces his or her
level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
corporate-performance
2
<PAGE>
based bonus or incentive programs) by more than fifteen percent (15%) or
(C) a relocation of such individual's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or relocation
is effected by the Company without the individual's consent.
(m) "Misconduct" shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Purchaser, any unauthorized use or
disclosure by such person of confidential information or trade secrets of the
Company (or any Parent or Subsidiary), or any other intentional misconduct by
such person adversely affecting the business or affairs of the Company (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Company (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Purchaser or other person in the service of the Company (or any
Parent or Subsidiary).
(n) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(o) "Option" shall mean a stock option granted pursuant to the Plan.
------
(p) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
(q) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(r) "Parent" shall mean a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424 of the Code.
(s) "Plan" shall mean this 1994 Incentive Stock Plan.
----
(t) "Plan Administrator" shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Plan with respect to one or more classes of eligible persons, to
the extent such entity is carrying out its administrative functions under the
Plan with respect to the persons under its jurisdiction.
(u) "Primary Committee" shall mean the committee of two (2) or more non-
-----------------
employee Board members appointed by the Board to administer the Plan with
respect to Section 16 Insiders.
(v) "Purchaser" shall mean an Employee or Consultant who exercises a Stock
---------
Purchase Right.
(w) "Secondary Committee" shall mean a committee of two (2) or more Board
-------------------
members appointed by the Board to administer the Plan with respect to eligible
persons other than Section 16 Insiders.
(x) "Section 12(g) Registration Date" shall mean the first date on which
-------------------------------
the Common Stock is registered under Section 12(g) of the Exchange Act.
3
<PAGE>
(y) "Section 16 Insider" shall mean an officer or director of the Company
------------------
subject to the short-swing profit liabilities of Section 16 of the Exchange Act.
(z) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(aa) "Stock Purchase Right" shall mean a right to purchase Common Stock
--------------------
pursuant to the Plan or the right to receive a bonus of Common Stock for past
services.
(ab) "Subsidiary" shall mean a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424 of the Code.
(ac) "Take-Over Price" shall mean the greater of (i) the fair market value
--------------- -------
per Share on the date the Option is surrendered to the Company in connection
with a Hostile Take-Over or (ii) the highest reported price per Share paid by
the tender offeror in effecting such Hostile Take-Over. However, if the
surrendered option is an Incentive Stock Option, the Take-Over Price shall not
exceed the clause (i) price per Share.
(ad) "Taxes" shall mean the Federal, state and local income and employment
-----
tax liabilities incurred by the holder of Nonstatutory Stock Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
3. Stock Subject to the Plan.
-------------------------
(a) Subject to the provisions of Section 12 of the Plan, the maximum
aggregate number of Shares under the Plan is 750,000/1/ shares of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common Stock.
(b) No one person participating in the Plan may receive Options,
separately exercisable stock appreciation rights and Stock Purchase Rights for
more than 400,000 Shares per calendar year during the term of the Plan beginning
with the 1995 calendar year.
(c) If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full or if an
Option is cancelled in accordance with the cancellation-regrant provisions of
the Plan, then the unpurchased Shares which were subject thereto shall, unless
the Plan shall have been terminated, become available for future option grant or
sale under the Plan. Notwithstanding any other provision of the Plan, shares
issued upon exercise of Options or Stock Purchase Rights (whether or not these
shares are later repurchased by the Company) shall not become available for
future grant or sale under the Plan. In addition, should the exercise price of
an Option be paid with Shares or should Shares otherwise issuable under the Plan
be withheld by the Company in satisfaction of the withholding taxes incurred in
connection with the exercise of an Option or the vesting of Shares issued under
Stock Purchase Rights, then the number of Shares available for issuance under
the Plan shall be reduced by the gross number of shares for which the Option is
exercised or which vest under the Stock Purchase Right, and not by the net
number of Shares issued to the holder of such Option or Share issuance.
- ---------------------
/1/ Reflects the 1-for-2 reverse stock split effected on October 6, 1995.
4
<PAGE>
4. Administration of the Plan.
--------------------------
(a) Procedure. The Plan shall be administered as follows:
---------
(i) The Primary Committee shall have sole and exclusive authority to
administer the Plan with respect to Section 16 Insiders. No non-employee
Board member shall be eligible to serve on the Primary Committee if such
individual has, during the twelve (12)-month period immediately preceding
the date of his or her appointment to the Primary Committee or (if shorter)
the period commencing with the Section 12(g) Registration Date and ending
with the date of his or her appointment to the Primary Committee, received
an Option grant, Stock Purchase Right or direct stock issuance under the
Plan or any other stock option, stock appreciation, stock bonus or other
stock plan of the Company (or any Parent or Subsidiary) other than pursuant
to the 1995 Director Option Plan.
(ii) Administration of the Plan with respect to all other persons
eligible to participate in the Plan may, at the Board's discretion, be
vested in the Primary Committee or a Secondary Committee, or the Board may
retain the power to administer the Plan with respect to all such persons.
The members of the Secondary Committee may be Board members who are
Employees eligible to receive Option grants, stock purchase right or direct
stock issuances under the Plan or any stock option, stock appreciation,
stock bonus or other stock plan of the Company (or any Parent or
Subsidiary).
(iii) Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed
by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
(b) Powers of the Plan Administrator. Subject to the provisions of the
--------------------------------
Plan, the Plan Administrator shall have the authority, in its discretion: (i) to
grant Incentive Stock Options, Nonstatutory Stock Options or Stock Purchase
Rights; (ii) to determine the exercise price per Share of Options or Stock
Purchase Rights to be granted, which exercise price shall be determined in
accordance with Section 7 of the Plan; (iii) to determine the Employees or
Consultants to whom, and the time or times at which, Options or Stock Purchase
Rights shall be granted and the number of Shares to be represented by each
Option or Stock Purchase Right; (iv) to interpret the Plan; (v) to prescribe,
amend and rescind rules and regulations relating to the Plan; (vi) to determine
the terms and provisions of each Option and Stock Purchase Right granted (which
need not be identical) and, with the consent of the holder thereof, modify or
amend any provisions (including provisions relating to exercise price) of any
Option or Stock Purchase Right; (vii) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option or Stock Purchase Right previously granted by the Plan Administrator; and
(viii) to make all other determinations deemed necessary or advisable for the
administration of the Plan.
5
<PAGE>
(c) Effect of Plan Administrator's Decision. All decisions,
---------------------------------------
determinations and interpretations of the Plan Administrator shall be final and
binding on all Optionees, Purchasers and any other holders of any Options or
Stock Purchase Rights granted under the Plan.
5. Eligibility.
-----------
(a) Options and Stock Purchase Rights may be granted to Employees and
Consultants, provided that Incentive Stock Options may only be granted to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if such Employee or Consultant is otherwise eligible, be
granted additional Option(s) or Stock Purchase Right(s).
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate fair market
value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into account in
the order in which they were granted, and the fair market value of the Shares
shall be determined as of the time the Option with respect to such Shares is
granted.
(d) The Plan shall not confer upon any Optionee or holder of a Stock
Purchase Right any right with respect to continuation of employment by or the
rendition of services to the Company, nor shall it interfere in any way with his
or her right or the Company's right to terminate his or her employment or
services at any time, with or without cause.
6. Term of Plan.
------------
(a) The Plan became effective upon its adoption by the Board. The Plan was
amended and restated by the Board on October 6, 1995 in connection with the
initial public offering of the Company. The restatement became effective on the
Section 12(g) Registration Date. The provisions of the restatement of the Plan
shall apply only to Options and Stock Purchase Rights granted under the Plan
from and after the effective date of the restatement. All Options and Stock
Purchase Rights issued and outstanding under the Plan immediately prior to the
effective date of the restatement shall continue to be governed by the terms and
conditions of the Plan (and the instrument evidencing each such Option and Stock
Purchase Right) as in effect on the date each such Option and Stock Purchase
Right was previously granted, and nothing in the restatement shall be deemed to
affect or otherwise modify the rights or obligations of the holders of such
Options and Stock Purchase Rights with respect to the acquisition of Shares
thereunder.
(b) The Plan shall continue in effect for a term of ten (10) years from
the date of its initial adoption by the Board unless sooner terminated under
Section 14 of the Plan.
6
<PAGE>
7. Exercise Price and Consideration.
--------------------------------
(a) The per Share exercise price for the Shares to be issued pursuant to
exercise of an Option or Stock Purchase Right shall be such price as is
determined by the Plan Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
fair market value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise price shall
be no less than 100% of the fair market value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option or a Stock Purchase
Right
(A) granted to a person who, at the time of the grant of such Option,
owns stock representing more than ten percent (10%) of the voting power of
all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the fair market value
per Share on the date of grant.
(B) granted to any person, the per Share exercise price shall be no
less than 85% of the fair market value per Share on the date of grant.
(b) The fair market value shall be determined by the Plan Administrator in
its discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices (or the closing price per share if the Common Stock is listed on
the National Association of Securities Dealers Automated Quotation ("Nasdaq")
National Market System of the Common Stock for the date in question, as reported
in the Wall Street Journal (or, if not so reported, as otherwise reported by the
Nasdaq System) or, in the event the Common Stock is listed on a stock exchange,
the fair market value per Share shall be the closing price on such exchange on
the date in question, as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon exercise
of an Option or Stock Purchase Right, including the method of payment, shall be
determined by the Plan Administrator and may consist entirely of:
(i) cash;
(ii) check (personal, cashier's or certified);
(iii) money order;
7
<PAGE>
(iv) promissory note;
(v) other Shares of Common Stock held for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and having a fair market value on the date of exercise
of the Option or Stock Purchase Right equal to the aggregate exercise price
of the Shares as to which the Option or Stock Purchase Right is being
exercised;
(vi) delivery of a properly executed exercise notice together with
irrevocable instructions to a Company-designated broker to promptly deliver
to the Company the amount of sale or loan proceeds required to pay the
exercise price;
(vii) delivery of an irrevocable subscription agreement for the Shares
which irrevocably obligates the Optionee to take and pay for the Shares not
more than twelve months after the date of delivery of such subscription
agreement;
(viii) or any combination of such methods of payment; or
(ix) such other consideration and method of payment for the issuance of
Shares to the extent permitted under Sections 152 and 153 of the General
Corporation Law of Delaware.
8. Options.
-------
(a) Term of Option. The term of each Incentive Stock Option shall be
--------------
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Incentive Stock Option Agreement. The term of each Option that
is not an Incentive Stock Option shall be ten (10) years and one (1) day from
the date of grant thereof or such shorter term as may be provided in the Stock
Option Agreement. However, in the case of an Option granted to an Optionee who,
at the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, (i) if the Option is an Incentive Stock Option, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
time as may be provided in the Stock Option Agreement, or (ii) if the Option is
a Nonstatutory Stock Option, the term of the Option shall be five (5) years and
one (1) day from the date of grant thereof or such other term as may be provided
in the Stock Option Agreement.
(b) Exercise of Option.
------------------
(i) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Plan Administrator, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.
8
<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may, as authorized by the Plan Administrator,
consist of any consideration and method of payment allowable under Section
7 of the Plan. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. In the event that the exercise of an
Option is treated in part as the exercise of an Incentive Stock Option and
in part as the exercise of a Nonstatutory Stock Option pursuant to Section
5(b), the Company shall issue a separate stock certificate evidencing the
Shares treated as acquired upon exercise of an Incentive Stock Option and a
separate stock certificate evidencing the Shares treated as acquired upon
exercise of a Nonstatutory Stock Option and shall identify each such
certificate accordingly in its stock transfer records. No adjustment will
be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 12
of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(ii) Termination of Status as an Employee or Consultant. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or
Consultant (as the case may be), such Optionee may, but only within thirty
(30) days (or such other period of time as is determined by the Plan
Administrator) after the date of such termination (but in no event later
than the date of expiration of the term of such Option as set forth in the
Option Agreement) exercise the Option to the extent that such Employee or
Consultant was entitled to exercise it at the date of such termination. To
the extent that such Employee or Consultant was not entitled to exercise
the Option at the date of such termination, or if such Employee or
Consultant does not exercise such Option (which such Employee or Consultant
was entitled to exercise) within the time specified herein, the Option
shall terminate.
(iii) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
8(b)(ii) above, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of such Employee's or
Consultant's total and permanent disability (as defined in Section 22(e)(3)
of the Code), such Employee or Consultant may, but only within six (6)
months (or such other period of time as is determined by the Plan
Administrator) from the date of
9
<PAGE>
such termination (but in no event later than the date of expiration of the
term of such Option as set forth in the Option Agreement), exercise the
Option to the extent such Employee or Consultant was entitled to exercise
it at the date of such termination. To the extent that such Employee or
Consultant was not entitled to exercise the Option at the date of
termination, or if such Employee or Consultant does not exercise such
Option (which such Employee or Consultant was entitled to exercise) within
the time specified herein, the Option shall terminate.
(iv) Death of Optionee. In the event of the death of an Optionee:
-----------------
(A) during the term of the Option who is at the time of his or
her death an Employee or Consultant of the Company and who shall have been
in Continuous Status as an Employee or Consultant since the date of grant
of the Option, the Option may be exercised, at any time within six (6)
months (or such other period of time as is determined by the Plan
Administrator) following the date of death (but in no event later than the
date of expiration of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent of
the right to exercise that would have accrued had the Optionee continued
living and remained in Continuous Status as an Employee or Consultant six
(6) months (or such other period of time as is determined by the Plan
Administrator) after the date of death; or
(B) within thirty (30) days (or such other period of time as is
determined by the Plan Administrator) after the termination of Continuous
Status as an Employee or Consultant, the Option may be exercised, at any
time within six (6) months (or such other period of time as is determined
by the Plan Administrator) following the date of death (but in no event
later than the date of expiration of the term of such Option as set forth
in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
termination.
(v) Misconduct. Should the Optionee's Continuous Status as an
----------
Employee or Consultant be terminated for Misconduct, then all outstanding
Options held by the Optionee shall terminate immediately and cease to be
outstanding.
(vi) The Plan Administrator shall have the discretion, exercisable
either at the time an Option is granted or at any time while the Option
remains outstanding, to:
(A) extend the period of time for which the Option is to remain
exercisable following the Optionee's termination of Continuous Status as an
Employee or Consultant from the period otherwise in effect for that Option
to such greater period of time as the Plan Administrator shall deem
appropriate, but
10
<PAGE>
in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement, and/or
(B) permit the Option to be exercised, during the applicable post-
service exercise period, not only to the extent the Optionee was entitled
to exercise the Option at the date of termination but also with respect to
one or more additional Shares for which the Optionee would have been
entitled to exercise the Option had the Optionee continued in service.
(c) The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding Options under the Plan and to grant in
substitution new options covering the same or different number of Shares but
with an exercise price per share based on the fair market value per Share on the
new grant date.
9. Stock Appreciation Rights.
-------------------------
(a) The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
(b) The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect between
the exercise of the underlying Option for Shares and the surrender of that
Option in exchange for a distribution from the Company in an amount equal
to the excess of (A) the fair market value (on the Option surrender date)
of the number of Shares for which the surrendered Option (or surrendered
portion thereof) is at the time exercisable over (B) the aggregate exercise
price payable for such Shares.
(ii) No such Option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall be entitled may be made in
Shares valued at fair market value on the Option surrender date, in cash,
or partly in Shares and partly in cash, as the Plan Administrator shall in
its sole discretion deem appropriate.
(iii) If the surrender of an Option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered Option (or surrendered portion thereof) on the
Option surrender date and may exercise such rights at any time prior to the
later of (A) five (5) business days after the receipt of the rejection
-----
notice or (B) the last day on which the Option is otherwise exercisable in
accordance with the terms of the Option Agreement evidencing such Option,
but in no event may such rights be exercised more than ten (10) years after
the Option grant date.
11
<PAGE>
(c) The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding Options.
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more Options with such a limited stock
appreciation right in effect for at least six (6) months shall have the
unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each such Option to the Company, to
the extent the Option is at the time exercisable for vested Shares. In
return for the surrendered Option, the Optionee shall receive a cash
distribution from the Company in an amount equal to the excess of (A) the
Take-Over Price of the Shares which each surrendered Option (or surrendered
portion thereof) is at the time exercisable over (B) the aggregate exercise
price payable for such shares. Such cash distribution shall be paid within
five (5) days following the Option surrender date.
(iii) Neither the approval of the Plan Administrator nor the consent
of the Board shall be required in connection with such Option surrender and
cash distribution.
(iv) The balance of the Option (if any) shall continue in full
force and effect in accordance with the Option Agreement evidencing such
option.
10. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. After the Plan Administrator determines that it
------------------
will offer an Employee or Consultant a Stock Purchase Right, it shall deliver to
the offeree a stock purchase agreement or stock bonus agreement, as the case may
be, setting forth the terms, conditions and restrictions relating to the offer,
including the number of Shares which such person shall be entitled to purchase,
and the time within which such person must accept such offer, which shall in no
event exceed six (6) months from the date upon which the Plan Administrator made
the determination to grant the Stock Purchase Right. The offer shall be accepted
by execution of a stock purchase agreement or stock bonus agreement in the form
determined by the Plan Administrator.
(b) Issuance of Shares. Forthwith after payment therefor, the Shares
------------------
purchased shall be duly issued; provided, however, that the Plan Administrator
may require that the Purchaser make adequate provision for any Federal and State
withholding obligations of the Company as a condition to the Purchaser
purchasing such Shares.
(c) Repurchase Option. Unless the Plan Administrator determines
-----------------
otherwise, the stock purchase agreement or stock bonus agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the Purchaser's service with the Company for any reason
(including death or disability). If the Plan Administrator so determines, the
purchase price for shares repurchased may be paid by cancellation of any
indebtedness of the Purchaser to the Company. The repurchase option shall lapse
at such rate as the Plan Administrator may determine.
12
<PAGE>
(d) Other Provisions. The stock purchase agreement or stock bonus
----------------
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Plan Administrator.
11. Non-Transferability of Options and Stock Purchase Rights. The Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee or Purchaser, only by the Optionee or Purchaser.
12. Adjustments Upon Changes in Capitalization or Merger or Change in Control.
-------------------------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right and the
number of shares of Common Stock for which Options, separately exercisable stock
appreciation rights and Stock Purchase Rights may be issued to any one person
per calendar year, as well as the price per share of Common Stock covered by
each such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Plan
Administrator, whose determination in that respect shall be final, binding and
conclusive.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
--------------------------
or liquidation of the Company, all Options and Stock Purchase Rights will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Plan Administrator. The Plan Administrator may, in the
exercise of its sole discretion in such instances, declare that all Options
shall terminate as of a date fixed by the Plan Administrator and give each
Optionee the right to exercise any Option held as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable.
(c) Sale of Assets or Merger.
------------------------
(i) In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation (a "Corporate Transaction"), all Options shall be assumed or
equivalent options shall be substituted by the successor corporation or a
parent or subsidiary of such successor corporation. In the event that such
successor corporation refuses to assume all Options or to substitute
equivalent options, Optionees shall have the right to exercise Options held
by them as to all of the Optioned Stock, including Shares as to which such
Options would not otherwise be exercisable. If an Option becomes fully
exercisable in lieu of assumption or
13
<PAGE>
substitution in the event of a Corporate Transaction, the Plan
Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of time determined by the Plan Administrator from
the date of such notice, and the Option will terminate upon the expiration
of such period. For purposes of this paragraph, an Option granted under the
Plan shall be deemed to be assumed if, following the Corporate Transaction,
the Option confers the right to purchase, for each Share of Optioned Stock
subject to the Option immediately prior to such sale of assets or merger,
the consideration (whether stock, cash or other securities or property)
received in the Corporate Transaction by holders of Common Stock for each
Share held on the effective date of the transaction (and, if such holders
were offered a choice of consideration, the type of consideration chosen by
the holders of a majority of the outstanding Shares); provided, however,
that if such consideration received in the Corporate Transaction was not
solely Common Stock of the successor corporation or its parent, the Plan
Administrator may, with the consent of the successor corporation and the
Optionee, provide for the per share consideration to be received upon
exercise of the Option to be solely Common Stock of the successor
corporation or its parent equal in fair market value (determined as set
forth in Section 7(b) hereof) to the per share consideration received by
holders of Common Stock in the Corporate Transaction.
(ii) Options which are assumed or substituted in the Corporate
Transaction shall automatically accelerate and become exercisable for all
the Optioned Stock then subject to the Options, in the event the Optionee's
Continuous Status as an Employee or Consultant should subsequently
terminate by reason of an Involuntary Termination within eighteen (18)
months following the effective date of such Corporate Transaction. Any
Options so accelerated shall remain exercisable for fully-vested shares
until the earlier of (A) the expiration of the term of such Option as
-------
set forth in the Option Agreement or (B) the expiration of the one (1)-year
period measured from the effective date of the Involuntary Termination.
(iii) All of the Company's outstanding repurchase options under Stock
Purchase Rights shall terminate automatically, and all the shares of Common
Stock subject to those terminated options shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent those
repurchase options are assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction.
(iv) Any repurchase options that are assigned in the Corporate
Transaction shall automatically terminate, and all the Shares subject to
those terminated options shall immediately vest in full, in the event the
Purchaser's Continuous Status as an Employee or Consultant should
subsequently terminate by reason of an Involuntary Termination within
eighteen (18) months following the effective date of such Corporate
Transaction.
14
<PAGE>
(d) Change in Control.
-----------------
(i) The Plan Administrator shall have the discretion, exercisable
either at the time the Option is granted or at any time while the Option
remains outstanding, to (A) provide for the automatic acceleration of one
or more outstanding Options upon the occurrence of a Change in Control or
(B) condition any such Option acceleration upon the subsequent Involuntary
Termination of the Optionee's Continuous status as an Employee or
Consultant within eighteen (18) months following the effective date of such
Change in Control. Any Options accelerated in connection with a Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term.
(ii) The Plan Administrator shall have the discretion, exercisable
either at the time a Stock Purchase Right is granted or at any time while
the Company's repurchase option remains outstanding, to (A) provide for the
automatic termination of one or more outstanding repurchase options and the
immediate vesting of the Shares subject to those rights upon the occurrence
of a Change in Control or (B) condition any such accelerated vesting upon
the subsequent Involuntary Termination of the Purchaser's Continuous Status
as an Employee or Consultant within eighteen (18) months following the
effective date of such Change in Control.
(e) Incentive Stock Options. The portion of any Incentive Stock Option
-----------------------
accelerated in connection with a Corporate Transaction or Change in Control
shall remain exercisable as an Incentive Stock Option only to the extent the
applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To
the extent such dollar limitation is exceeded, the portion of such option shall
be exercisable as a Nonstatutory Stock Option under the Federal tax laws.
(f) No Other Adjustments. Except as expressly provided or authorized
--------------------
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into or exercisable for shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
13. Time of Granting Options and Stock Purchase Rights. The date of grant of
an Option or Stock Purchase Right shall, for all purposes, be the date on which
the Plan Administrator makes the determination granting such Option or Stock
Purchase Right. Notice of the determination shall be given to each Employee or
Consultant to whom an Option or Stock Purchase Right is so granted within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 18 of the
Plan:
(i) any material increase in the number of Shares subject to the Plan
or the maximum number of Shares for which any one person may be granted
15
<PAGE>
Options, stock appreciation rights and Stock Purchase Rights, other than in
connection with an adjustment under Section 12 of the Plan;
(ii) any material change in the designation of the class of persons
eligible to be granted Options and Stock Purchase Rights; or
(iii) any material increase in the benefits accruing to participants
under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
--------------------
approval under Section 14(a) of the Plan is made, such shareholder approval
shall be solicited as described in Section 18 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Purchaser (as the case may be)
and the Plan Administrator, which agreement must be in writing and signed by the
Optionee or Purchaser (as the case may be) and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
----------------------------------
to the exercise of an Option or Stock Purchase Rights unless the exercise of
such Option or Stock Purchase Rights and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase Rights, the
Company may require the person exercising such Option or Stock Purchase Rights
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
16. Reservation of Shares. The Company, during the term of this Plan, will at
---------------------
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
17. Option, Stock Purchase and Stock Bonus Agreements. Options shall be
-------------------------------------------------
evidenced by written option agreements in such form as the Plan Administrator
shall approve.
16
<PAGE>
Upon the exercise of Stock Purchase Rights, the Purchaser shall sign a stock
purchase agreement or stock bonus agreement in such form as the Plan
Administrator shall approve.
18. Shareholder Approval.
--------------------
(a) Any required approval of the shareholders of the Company shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(b) If any required approval by the shareholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 18(a) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies
to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the Securities and Exchange
Commission four copies of the written information referred to in subsection
(i) hereof not later than the date on which such information is first sent
or given to shareholders.
19. Information to Optionees and Purchasers. The Company shall provide to each
---------------------------------------
Optionee and Purchaser, during the period for which such Optionee or Purchaser
has one or more Options or Stock Purchase Rights outstanding, copies of all
annual reports and other information which are provided to all shareholders of
the Company. The Company shall not be required to provide such information if
the issuance of Options or Stock Purchase Rights under the Plan is limited to
key employees whose duties in connection with the Company assure their access to
equivalent information.
20. Tax Withholding.
---------------
(a) The Company's obligation to deliver Shares of Common Stock upon
the exercise of Options or stock appreciation rights or Stock Purchase Rights or
upon the issuance or vesting of such shares under the Plan shall be subject to
the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.
(b) The Plan Administrator may, in its discretion, provide any or all
holders of Nonstatutory Stock Options or unvested Shares under the Plan with the
right to use Shares in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their Options or the vesting of their
Shares. Such right may be provided to any such holder in either or both of the
following formats:
17
<PAGE>
(i) Stock Withholding: The election to have the Company
-----------------
withhold, from the Shares otherwise issuable upon the exercise of such
Nonstatutory Stock Option or the vesting of such Shares, a portion of those
Shares with an aggregate fair market value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
(ii) Stock Delivery: The election to deliver to the Company, at
--------------
the time the Nonstatutory Stock Option is exercised or the Shares vest, one
or more Shares previously acquired by such holder (other than in connection
with the option exercise or share vesting triggering the Taxes) with an
aggregate fair market value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
18
<PAGE>
PHARMACOPEIA, INC. 1994 INCENTIVE STOCK PLAN
Amendment No. 1
---------------
Pursuant to the power reserved to it in Section 14 of the Pharmacopeia, Inc.
1994 Incentive Stock Plan, as amended (the "Plan"), the Board of Directors of
Pharmacopeia, Inc. hereby amends the Plan as follows:
1. The first sentence of Section 3(a) is hereby amended and restated to read
as follows:
"Subject to the provisions of Section 12 of the Plan, the maximum
aggregate number of shares under the Plan is 1,250,000 shares of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common Stock."
2. This Amendment No. 1 to the Plan shall be effective only after approval of
a majority of the Company's stockholders as set forth in Section 14.
To record the adoption of this Amendment No. 1, the Company has caused its
authorized officers to affix its corporation name and seal as of this 3rd day of
June, 1996.
CORPORATE SEAL PHARMACOPEIA, INC.
Attest: /s/ Lewis J. Shuster By: /s/ Joseph A. Mollica
---------------------- -------------------------------
Lewis J. Shuster, Joseph A. Mollica,
Assistant Secretary Chairman of the Board and Chief
Executive Officer
<PAGE>
PHARMACOPEIA, INC. 1994 INCENTIVE STOCK PLAN
Amendment No. 2
---------------
Pursuant to the power reserved to it in Section 14 of the Pharmacopeia, Inc.
1994 Incentive Stock Plan, as amended (the "Plan"), the Board of Directors of
Pharmacopeia, Inc. hereby amends the Plan as follows:
Section 2(t) is hereby amended and restated in its entirety to read as
follows:
"`Plan Administrator' shall mean the particular entity, whether the Board,
the Primary Committee, the Secondary Committee, or a subcommittee thereof, which
is authorized to administer the Plan with respect to one or more classes of
eligible persons, to the extent such entity is carrying out its administrative
functions under the Plan with respect to the persons under its jurisdiction. A
subcommittee of the Primary Committee or the Secondary Committee which has been
approved by the Board may be delegated those administrative functions under the
Plan which have been authorized to be performed hereunder by the Primary or
Secondary Committee, as the case my be."
To record the adoption of this Amendment No. 2, the Company has caused its
authorized officers to affix its corporation name and seal this _______________
day of __________________, 1997.
CORPORATE SEAL PHARMACOPEIA, INC.
Attest: /s/ Lewis J. Shuster By: /s/ Joseph A. Mollica
---------------------- -------------------------------
Lewis J. Shuster, Joseph A. Mollica,
Secretary Chairman of the Board, President
and Chief Executive Officer
<PAGE>
PHARMACOPEIA, INC. 1994 INCENTIVE STOCK PLAN
Amendment No. 3
---------------
Pursuant to the power reserved to it in Section 14 of the Pharmacopeia, Inc.
1994 Incentive Stock Plan, as amended (the "Plan"), the Board of Directors of
Pharmacopeia, Inc. hereby amends the Plan as follows:
1. The first sentence of Section 3(a) is hereby amended and restated to read
as follows:
"Subject to the provisions of Section 12 of the Plan, the maximum
aggregate number of shares under the Plan is 1,750,000 shares of Common
Stock. The Shares may be authorized, but unissued, or reacquired Common
Stock."
2. This Amendment No. 3 to the Plan shall be effective only after approval of
a majority of the Company's stockholders as set forth in Section 14.
To record the adoption of this Amendment No. 3, the Company has caused its
authorized officers to affix its corporation name and seal this ____ day of
____________, 1997.
CORPORATE SEAL PHARMACOPEIA, INC.
Attest: /s/ Lewis J. Shuster By: /s/ Joseph A. Mollica
---------------------- -------------------------------
Lewis J. Shuster, Joseph A. Mollica,
Assistant Secretary Chairman of the Board, President
and Chief Executive Officer
<PAGE>
PHARMACOPEIA, INC. 1994 INCENTIVE STOCK PLAN
Amendment No. 4
---------------
Pursuant to the power reserved to it in Section 14 of the Pharmacopeia,
Inc. 1994 Incentive Stock Plan, as amended (the "Plan"), the Board of Directors
of Pharmacopeia, Inc. hereby amends the Plan as follows:
3. The first sentence of Section 3(a) is hereby amended and restated to
read as follows:
"Subject to the provisions of Section 12 of the Plan, the maximum
aggregate number of shares under the Plan is 2,250,000 shares of
Pharmacopeia Common Stock. The Shares may be authorized, but
unissued, or reacquired Pharmacopeia Common Stock."
4. This Amendment No. 4 to the Plan shall be effective only after approval
of a majority of Pharmacopeia's stockholders as set forth in Section 14.
To record the adoption of this Amendment No. 4, Pharmacopeia has caused its
authorized officers to affix its corporation name and seal as of this _____ day
of ______, 1998.
CORPORATE SEAL PHARMACOPEIA, INC.
Attest: /s/ Lewis J. Shuster By: /s/ Joseph A. Mollica
---------------------- -------------------------------
Lewis J. Shuster, Joseph A. Mollica,
Assistant Secretary Chairman of the Board, President and
Chief Executive Officer
<PAGE>
PHARMACOPEIA, INC. 1994 INCENTIVE STOCK PLAN
Amendment No. 5
---------------
Pursuant to the power reserved to it in Section 14 of the Pharmacopeia,
Inc. 1994 Incentive Stock Plan, as amended (the "Plan"), the Board of Directors
of Pharmacopeia, Inc. hereby amends the Plan as follows:
1. The first sentence of Section 3(a) is hereby amended and restated to
read as follows:
"Subject to the provisions of Section 12 of the Plan, the maximum
aggregate number of shares under the Plan is 2,750,000 shares of
Pharmacopeia Common Stock. The Shares may be authorized, but
unissued, or reacquired Pharmacopeia Common Stock."
2. This Amendment No. 5 to the Plan shall be effective only after approval
of a majority of Pharmacopeia's stockholders as set forth in Section 14 and upon
consummation of the merger of Micro Acquisition Corporation, a wholly-owned
subsidiary of Pharmacopeia, with and into Molecular Simulations Incorporated.
To record the adoption of this Amendment No. 5, Pharmacopeia has caused its
authorized officers to affix its corporation name and seal as of this _____ day
of ______, 1998.
CORPORATE SEAL PHARMACOPEIA, INC.
Attest: /s/ Lewis J. Shuster By: /s/ Joseph A. Mollica
----------------------- -------------------------------
Lewis J. Shuster, Joseph A. Mollica,
Assistant Secretary Chairman of the Board, President and
Chief Executive Officer
<PAGE>
PHARMACOPEIA, INC. 1994 INCENTIVE STOCK PLAN
Amendment No. 6
---------------
Pursuant to the power reserved to it in Section 14 of the Pharmacopeia,
Inc. 1994 Incentive Stock Plan, as amended (the "Plan"), the Board of Directors
of Pharmacopeia, Inc. hereby amends the Plan as follows:
1. The first sentence of Section 3(a) is hereby amended and restated to
read as follows:
"Subject to the provisions of Section 12 of the Plan, the maximum
aggregate number of shares under the Plan is 3,700,000 shares of
Pharmacopeia Common Stock. The Shares may be authorized, but
unissued, or reacquired Pharmacopeia Common Stock."
2. This Amendment No. 6 to the Plan shall be effective only after approval
of a majority of Pharmacopeia's stockholders as set forth in Section 14.
To record the adoption of this Amendment No. 6, Pharmacopeia has caused its
authorized officers to affix its corporation name and seal as of this _____ day
of ______, 1999.
CORPORATE SEAL PHARMACOPEIA, INC.
Attest: /s/ Lewis J. Shuster By: /s/ Joseph A. Mollica
--------------------- -------------------------------
Lewis J. Shuster, Joseph A. Mollica,
Assistant Secretary Chairman of the Board, President and
Chief Executive Officer
<PAGE>
This Proxy is solicited on behalf of the Board of Directors
PHARMACOPEIA, INC.
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 4, 1999
The undersigned stockholder of PHARMACOPEIA, INC., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated April 9, 1999, and hereby appoints Joseph A.
Mollica and Lewis J. Shuster, and each of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1999 Annual Meeting of
Stockholders of PHARMACOPEIA, INC. to be held on May 4, 1999 at 9:00 a.m. local
time, at The Forrestal at Princeton, Princeton, New Jersey and at any
adjournment or adjournments thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below:
<PAGE>
X Please mark your
votes as in this example.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Election of FOR all nominees If you wish to withhold authority to vote for any individual nominee, strike a
Directors. (except as indicated) line through that nominee's name in the list below:
Joseph A. Mollica, Gary E. Costley, C. Peter W. Booth
<CAPTION>
<C> <C> <C> <C>
2. Approval Of Amendment To 1994 FOR AGAINST ABSTAIN
Incentive Stock Plan To Increase To [ ] [ ] [ ]
3,700,000 The Number Of Shares
Authorized For Issuance Thereunder:
and, in their discretion, upon such other
matter or matters which may properly
come before the meeting or any
adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF
NO CONTRARY DIRECTION IS INDICATED, WILL BE
VOTED FOR THE ELECTION OF DIRECTORS, FOR THE
AMENDMENT OF THE 1994 INCENTIVE STOCK PLAN
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
Signature(s): _________________________ Date: ____________ 1999 Signature(s)_________________________ Date: ____________ 1999
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as his or her name appears hereon, and returned
promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants
or as community property, both should sign.)
</TABLE>
