<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
DepoMed, 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
DEPOMED, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 2, 1999
TO THE SHAREHOLDERS OF DEPOMED, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of DepoMed,
Inc., a California corporation (the "Company"), will be held on Wednesday,
June 2, 1999 at 9:30 a.m., local time, at 366 Lakeside Drive, Foster City,
California for the following purposes:
1. To elect directors to serve until the next annual meeting of
shareholders and until their successors are duly elected and qualified.
2. To approve an amendment to the Company's Amended and Restated 1995 Stock
Option Plan to increase the number of shares reserved for issuance under
the Plan.
3. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 31, 1999.
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 28, 1999 are
entitled to notice of, and to vote at, the meeting and any adjournments
thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, please mark, sign, date
and return the enclosed proxy card as soon as possible in the postage-prepaid
envelope enclosed for that purpose. Any shareholder attending the meeting may
vote in person even if such shareholder previously signed and returned a
proxy.
By Order of the Board of Directors
Julian N. Stern
Secretary
Foster City, California
May 3, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES.
<PAGE>
DEPOMED, INC.
----------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors (the
"Board") of DepoMed, Inc. (the "Company") for use at the Company's Annual
Meeting of Shareholders (the "Annual Meeting") to be held Wednesday, June 2,
1999 at 9:30 a.m., local time, or at any adjournments or postponements
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held at the
Company's principal executive offices at 366 Lakeside Drive, Foster City,
California 94404. The telephone number at that address is (650) 513-0990.
These proxy solicitation materials were mailed on or about May 3, 1999 to
all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
Record Date and Shares Outstanding
Shareholders of record at the close of business on April 28, 1999 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting.
At the Record Date, approximately 6,475,077 shares of the Company's Common
Stock, no par value per share (the "Common Stock"), were issued, outstanding
and entitled to vote at the Annual Meeting.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person. Mere
attendance at the Annual Meeting will not serve to revoke a proxy.
Voting and Solicitation
Holders of Common Stock are entitled to one vote for each share of Common
Stock held. In order to constitute a quorum for conduct of business at the
Annual Meeting, a majority of the outstanding shares of Common Stock
outstanding on the Record Date must be represented at the Annual Meeting.
Solicitation of proxies may be made by directors, officers and other
employees of the Company by personal interview, telephone, facsimile or other
method. No additional compensation will be paid for any such services. Costs
of solicitation, including preparation, assembly, printing and mailing of this
proxy statement, the proxy and any other information furnished to the
shareholders, will be borne by the Company. The Company may reimburse the
reasonable charges and expenses of brokerage houses or other nominees or
fiduciaries for forwarding proxy materials to, and obtaining authority to
execute proxies from, beneficial owners for whose account they hold shares of
Common Stock.
Quorum; Abstentions and Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock outstanding on the Record Date.
Broker non-votes and shares held by persons abstaining will be counted in
determining whether a quorum is present at the Annual Meeting. However,
abstentions are counted as votes against a proposal for purposes of
determining whether or not a proposal has been approved, whereas broker non-
votes are not counted for purposes of determining whether a proposal has been
approved.
<PAGE>
ELECTION OF DIRECTORS
Nominees
The Bylaws of the Company provide for a Board consisting of not fewer than
five nor more than nine directors. Five directors are to be elected at the
Annual Meeting. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the five nominees named below. All of the
nominees named below are presently directors of the Company and were elected
to their present terms by the shareholders of the Company. The present term of
each of the directors continues until the Annual Meeting and until his
successor has been elected and qualified. In the event that any nominee 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 shall be designated by the
present Board to fill the vacancy. The Board has no reason to believe that any
of the persons named below will be unable or unwilling to serve as a director
if elected.
The term of office of each person elected as a director will continue until
the next Annual Meeting of Shareholders and until his successor has been
elected and qualified.
The name of and certain other information regarding each nominee is set
forth in the table below.
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
<S> <C> <C> <C>
John W. Shell, Ph.D. ... 74 Chairman of the Board and Chief Scientific Officer 1995
John W. Fara, Ph.D...... 56 President and Chief Executive Officer 1995
John N. Shell........... 46 Vice President, Operations 1995
G. Steven Burrill....... 54 Chief Executive Officer, Burrill & Company 1997
W. Leigh Thompson, M.D., 60 Founder, Profound Quality Resources, Inc. 1998
Ph.D...................
</TABLE>
John N. Shell is Dr. Shell's son. There is no other family relationship
between any of the directors or executive officers of the Company. The
Articles of Incorporation and Bylaws of the Company contain provisions
eliminating or limiting the personal liability of directors for violations of
a director's fiduciary duty to the extent permitted by the California General
Corporation Law.
John W. Shell, Ph.D. established DepoMed Systems, Inc. ("DSI"), the
predecessor to the Company, in January 1990, and served as its Chairman,
President and Chief Executive Officer until it was incorporated as DepoMed,
Inc. in August 1995. He has served as the Chairman of the Board since the
Company's inception is August 1995. Dr. Shell also served as the Company's
President and Chief Executive Officer until December 1996, when he became the
Company's Chief Scientific Officer. Prior to founding DSI, he served as Vice
President for Research at Johnson & Johnson's IOLAB division. His experience
also includes eight years as a Senior Research Scientist at the Upjohn
Company, six years as Director of Research for Allergan Pharmaceuticals, and
15 years with ALZA Corporation ("ALZA"), dating from its founding in 1968. At
ALZA he held positions as Vice President of the pharmaceutical division and
corporate Vice President of Business Development. Dr. Shell received his B.A.,
B.S., and Ph.D. degrees from the University of Colorado.
John W. Fara, Ph.D. joined the Company as a director in 1995 and was
appointed its President and Chief Executive Officer in 1996. Between 1990 and
1996, he served as President and Chief Executive Officer at Anergen, Inc., a
biotechnology company, and acted as president of Prototek, Inc., an early
stage pharmaceutical development company. Prior to 1990, he spent ten years at
ALZA, where he held the positions of Director of Biomedical Research and Vice
President of Business Development. Dr. Fara is also a director of IOMED, Inc.
and several private pharmaceutical/biotechnology companies, and is active in
the business functions of several professional associations. He received a
B.S. from the University of Wisconsin and a Ph.D. from the University of
California, Los Angeles.
John N. Shell has served as a director of the Company since its inception
in August 1995, and acted as Director of Operations for the Company from May
1994 until December 1996, when he was named Vice
2
<PAGE>
President, Operations. Prior to working at the Company, Mr. Shell served as
Materials Manager at Ebara International Corporation, a multi-national
semiconductor equipment manufacturer and ILC Technology, an electro-optics and
electronics manufacturer. He also worked in the process and project
engineering departments at ALZA. Mr. Shell received his B.A. from the
University of California, Berkeley.
G. Steven Burrill has served as director of the Company since August 1997.
He founded and has been Chief Executive Officer of Burrill & Company, a
private merchant bank, since January 1997. Mr. Burrill served in the same
capacity at Burrill & Company's predecessor firm, Burrill & Craves, between
1994 and January 1997. Prior to starting Burrill & Craves, Mr. Burrill spent
28 years with Ernst & Young LLP, as Partner and as International Chairman of
the firm's Manufacturing/High Technology Industry Practice. Mr. Burrill is
also a director of TRANSGENE, S.A. and several private companies.
W. Leigh Thompson, M.D., Ph.D. has served as a director of the Company
since January 1998. In 1995, he founded Profound Quality Resources, Inc., a
private healthcare consulting firm, to provide consulting services to health
institutions and manufacturers worldwide. From 1982 to 1994, he worked at Eli
Lilly and Company, where he held the positions of Executive Vice President of
Lilly Research Laboratories and Chief Scientific Officer. Dr. Thompson also
serves as a director of Corvas International, Guilford Pharmaceuticals, Inc.,
La Jolla Pharmaceutical Company, Orphan Medical, Inc., Ophidian
Pharmaceuticals, Inc. and a number of private companies.
Required Vote
The five nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them will be
elected as directors.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE ELECTION OF EACH OF THE NOMINATED DIRECTORS
Board Meetings and Committees
The Board held a total of eight meetings during the fiscal year ended
December 31, 1998. Each of the directors except Dr. Thompson attended at least
75 percent of the aggregate of all meetings of the Board and of the
committees, if any, upon which such director served.
The Board has an Audit Committee and Compensation Committee but no
Nominating Committee. The principal functions of the Audit Committee are to
recommend engagement of the Company's independent auditors, to consult with
the Company's auditors concerning the scope of the audit and to review with
them the results of their examination, to review and approve any material
accounting policy changes affecting the Company's operating results and to
review the Company's financial control procedures and personnel. The Audit
Committee, which is composed of Dr. Thompson and Mr. Burrill, held one meeting
during fiscal 1998. The principal functions of the Compensation Committee are
to review and approve the Company's executive officer compensation policy and
administer the Company's employee stock option plan. The Compensation
Committee, which is composed of Dr. Thompson and Mr. Burrill, was formed in
December 1998 and has not yet held a meeting.
Compensation of Directors
Directors do not currently receive any cash compensation from the Company
for their services as members of the Board, although they are reimbursed for
certain expenses in connection with their attendance at meetings of the Board.
In connection with his appointment to the Board in August 1997, Mr. Burrill
received an option to purchase 10,000 shares of Common Stock at an exercise
price of $5.40 per share, which vests in 24 equal monthly installments. In
December 1997, Mr. Burrill received an option to purchase 10,000 shares of
Common Stock at an exercise price of $3.75 per share. The option vests with
respect to 25% of the underlying shares one year
3
<PAGE>
from the date of grant, and in 36 equal monthly installments thereafter. In
connection with his appointment to the Board in January 1998, Dr. Thompson
received an option to purchase 20,000 shares of Common Stock at an exercise
price of $3.75 per share. The option vests with respect to 25% of the
underlying shares one year from the date of grant, and in 36 equal monthly
installments thereafter. In December 1998, each of Dr. Thompson and Mr.
Burrill received an option to purchase 10,000 shares of Common Stock at an
exercise price of $7.75 per share, which vests in 12 equal monthly
installments.
MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of the Record Date (i) by each person who is
known by the Company to own beneficially more than five percent of the Common
Stock, (ii) by each of the Company's directors, (iii) by each of the Company's
executive officers named in the Summary Compensation Table below under the
caption "Executive Compensation" and (iv) by all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Number of Percentage
Shares of Shares
Beneficially Beneficially
Name of Beneficial Owner Owned(1) Owned(1)
- ------------------------ ------------ ------------
<S> <C> <C>
Cygnus, Inc.(2)..................................... 400,000 6.2
Paramount Capital Asset Management(3)............... 395,000 6.1
John W. Shell(4).................................... 1,566,676 24.2
John N. Shell(5).................................... 524,752 8.1
John W. Fara(6)..................................... 175,355 2.7
John F. Hamilton(7)................................. 52,093 *
G. Steven Burrill(8)................................ 17,917 *
W. Leigh Thompson(8)................................ 12,500 *
All directors and executive officers as a group (7
persons)(9)........................................ 2,349,293 36.3
</TABLE>
- --------
* Less than one percent.
(1) This table is based upon information supplied by directors, officers and
certain principal shareholders, as well as information included in
Securities and Exchange Commission filings made by principal shareholders
and other third party sources. Unless otherwise indicated in the
footnotes to this table and subject to the community property laws where
applicable, each of the shareholders named in this table has sole voting
and investment power with respect to the shares shown. Percentage of
ownership is based on 6,475,077 shares of Common Stock outstanding as of
April 28, 1999. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission, and includes voting and
investment power with respect to the shares. Shares of Common Stock
subject to outstanding options are deemed outstanding for computing the
percentage of ownership of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person.
(2) These shares are being held by Dr. John W. Shell for delivery to Cygnus,
Inc., formerly Cygnus Therapeutics Systems ("Cygnus") if certain
conditions are met. Cygnus, Inc.'s address is 400 Penobscot Drive,
Redwood City, California 94063.
(3) These shares are reported beneficially owned by one or more managed
accounts which are owned by Paramount Capital Asset Management, Inc.
("Paramount Capital"). Dr. Lindsay A. Rosenwald is the sole shareholder
of Paramount Capital. Paramount Capital's address is 787 7th Ave., New
York, New York 10019.
(4) Includes 400,000 shares of Common Stock held on behalf of Cygnus, of
which Dr. Shell disclaims beneficial ownership. See footnote 2.
(5) Includes 24,742 shares of Common Stock issuable upon exercise of
outstanding options which will vest within 60 days of April 28, 1999.
4
<PAGE>
(6) Includes 175,345 shares of Common Stock issuable upon exercise of
outstanding options which will vest within 60 days of April 28, 1999.
(7) Includes 43,750 shares of Common Stock issuable upon exercise of
outstanding options which will vest within 60 days of April 28, 1999.
(8) Represents shares of Common Stock issuable upon exercise of outstanding
options which will vest within 60 days of April 28, 1999.
(9) Includes 276,753 shares of Common Stock issuable upon exercise of
outstanding options which will vest within 60 days of April 28, 1999.
Also includes 400,000 shares held by Dr. John W. Shell on behalf of
Cygnus, of which Dr. Shell disclaims beneficial ownership.
Executive Compensation
The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer and each of the
Company's other executive officers who earned at least $100,000 during fiscal
1998 (collectively, the "Named Executive Officers") for services in all
capacities as officers of the Company during fiscal years 1996, 1997 and 1998.
None of the Named Executive Officers earned any bonuses or compensation for
the fiscal years other than as set forth in the table or received any
restricted stock awards, stock appreciation rights or long-term incentive plan
payouts.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation
--------------------- Long Term
Name and Principal Compensation All Other
Position Fiscal Year Salary($) Bonus($) Options(#) Compensation($)(1)
- ------------------ ----------- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
John W. Fara, Ph.D...... 1998 $220,000 $ 55,000 75,000 $456
President, Chief 1997 181,916 100,000(3) 250,000 380
Executive
Officer and Director(2) 1996 21,917(4) -- 83,333 --
John W. Shell, Ph.D..... 1998 220,000 55,000 -- 735
Chairman and Chief 1997 185,000 -- -- 735
Scientific Officer(5) 1996 185,000 -- -- --
John F. Hamilton........ 1998 155,000 22,500 25,000 264
Vice President, Finance 1997(6) 119,792 -- 90,000 231
and
Chief Financial Officer
John N. Shell........... 1998 118,896 22,500 25,000 160
Vice President, 1997 93,500 -- 38,666 132
Operations
and Director(7) 1996 87,833 -- -- --
</TABLE>
- --------
(1) Represents payments of term life insurance premiums paid by the Company on
behalf of the Named Executive Officers.
(2) Dr. Fara became President and Chief Executive Officer of the Company in
December 1996. Dr. Fara devoted 40% of his time to the Company until
February 1997, when he assumed his duties on a full-time basis.
(3) One-time bonus payment made by the Company in connection with Company's
initial public offering.
(4) Includes $15,750 that Dr. Fara received in connection with services
performed as consultant to the Company prior to his appointment as
President and Chief Executive Officer.
(5) Dr. Shell served as President and Chief Executive Officer of the Company
until December 1996.
(6) Mr. Hamilton was appointed the Company's Vice President, Finance and Chief
Financial Officer in January 1997. Compensation is for partial year.
(7) Mr. Shell became the Vice President, Operations of the Company in December
1996.
5
<PAGE>
The following table sets forth certain information regarding grants of
stock options made during the fiscal year ended December 31, 1998 to the Named
Executive Officers. Since inception, the Company has not granted any stock
appreciation rights.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants(1)
------------------------------------------
Potential
Realizable
Value at Assumed
Annual Rates of
% of Total Stock
Options Price
Granted to Appreciation for
Employees Exercise Option Term(2)
Options in Fiscal Price Expiration -----------------
Name Granted(#) Year(3) ($/sh)(4) Date 5%($) 10%($)
---- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John W. Fara, Ph.D...... 75,000 27.6% $7.625 12/09/08 $359,649 $911,421
John W. Shell, Ph.D..... -- -- -- -- -- --
John F. Hamilton........ 25,000 9.2 7.625 12/09/08 119,883 303,807
John N. Shell........... 25,000 9.2 7.625 12/09/08 119,883 303,807
</TABLE>
- --------
(1) The options reflected in this table were all granted under the Company's
Amended and Restated 1995 Stock Option Plan (the "Plan"). The date of
grant is 10 years prior to the expiration date listed.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
(3) Based on an aggregate of 271,500 options granted to employees of the
Company in fiscal 1998.
(4) Exercise price is the fair market value on the date of grant as determined
in accordance with the Plan.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year End Option Values
The following table sets forth certain information regarding exercises of
stock options during the fiscal year ended December 31, 1998 by the Named
Executive Officers. Value of unexercised options is considered to be the
difference between exercise price and market price of $7.875 per share on
December 31, 1998. No options were exercised by the Named Executive Officers
during fiscal 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at December 31, 1998 December 31, 1998
-------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Fara, Ph.D...... 131,595 293,405 $739,325 $1,071,675
John W. Shell, Ph.D..... -- -- -- --
John F. Hamilton........ 32,500 82,500 130,781 231,719
John N. Shell........... 19,908 82,500 115,613 312,344
</TABLE>
The Company did not make any awards during the fiscal year ended December
31, 1998 to any of the Named Executive Officers under any long-term incentive
plan providing compensation intended to serve as incentive for performance to
occur over a period longer than one fiscal year, excluding stock options.
6
<PAGE>
Employment Agreements
In February 1997 and in June 1997, the Company entered into two-year
employment agreements with John W. Fara and John W. Shell, respectively.
Pursuant to these agreements, Drs. Fara and Shell each received an annual base
salary of $185,000. Dr. Fara's agreement provided for him to receive his
salary and benefits for the remainder of the two-year term of the agreement in
the event of his termination without cause (as defined in the agreement) or in
the event of his involuntary termination following a change in control (as
defined in the agreement). Dr. Shell's employment agreement provides that
either party may terminate employment at any time upon 90 days written notice.
Each employment agreement provides that the employee will not disclose
confidential information of the Company during and after employment and will
not compete with the Company during the term of employment with the Company.
Certain Relationships and Related Transactions
In September 1997, the Company entered into an agreement with Burrill &
Company, a private merchant bank, pursuant to which Burrill & Company is to
provide assistance in the development of strategic partnerships with
pharmaceutical and biotechnology companies. The agreement was amended in
September 1998. Compensation under this agreement includes a 7% fee in cash or
stock based upon the value of any successful transaction with which Burrill &
Company is principally involved for the Company, plus a retainer of $5,000 per
month and out of pocket expenses associated with its activities on behalf of
the Company. In fiscal 1998, the Company paid Burrill & Company $103,042
pursuant to such agreement. Mr. Burrill, a director of the Company, is the
Chief Executive Officer of Burrill & Company.
In February 1998, the Company issued and sold 1,000,000 shares of its
Common Stock for $8.00 per share in a private placement to certain accredited
investors. Pursuant to such transaction, Paramount Capital Asset Management
became a holder of 5% or more of the outstanding Common Stock. See "Security
Ownership of Certain Beneficial Owners and Management."
In December 1997, the Company received a claim of approximately $250,000
from CSO Ventures LLC ("CSO"), an entity affiliated with Joshua Schein and
Judson Cooper, both of whom served as directors of the Company until June
1998. The Company's management negotiated a settlement of $85,000 as full
payment of the CSO claim. The agreement and mutual release was signed by CSO
and the Company in October 1998.
The Company has entered into indemnification agreements with each of its
current officers and directors pursuant to which the Company is obligated to
indemnify such officers and directors for breaches of fiduciary duty to the
fullest extent permitted by the California General Corporation Law.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership on Form
3 and changes in ownership on Form 4 or 5 with the Securities and Exchange
Commission and the National Association of Securities Dealers. Such officers,
directors and ten percent shareholders are also required by Securities and
Exchange Commission rules to furnish the Company with copies of all Section
16(a) forms that they file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that,
during the fiscal year ended December 31, 1998, all Section 16(a) filing
requirements applicable to its officers, directors or ten percent shareholders
were complied with, except that Bret Berner, who was appointed the Company's
Vice President, Product Development in December 1998, failed to timely file a
Form 3 reporting his initial holdings of Company securities. Dr. Berner
reported those holdings on a Form 5, timely filed in February 1999.
7
<PAGE>
AMENDMENT TO THE AMENDED AND RESTATED 1995 STOCK OPTION PLAN
INCREASING THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
Background
The Company adopted the 1995 Stock Option Plan in September 1995 and
amended and restated the plan in March 1999 (the "Plan"). The Plan provides
for the granting of options to officers, directors, selected employees and
consultants. The Plan is currently administered by the Compensation Committee
of the Board.
Increase in Number of Shares Authorized for Issuance. The Board has
approved, subject to shareholder approval, an amendment to the Plan increasing
the aggregate number of shares reserved for issuance thereunder by 800,000,
from 1,000,000 to 1,800,000, in order to ensure that there will be a
sufficient reserve of shares to permit the grant of further options to
existing and new employees and consultants of the Company. The Board believes
that increasing the number of shares reserved for issuance under the Plan is
necessary to permit the Company to remain competitive in the industry and to
continue to attract and retain qualified employees by providing them with
appropriate equity incentives.
Description of the Plan
The purpose of the Plan is to attract, retain and motivate officers, key
employees, consultants and directors of the Company by giving them the
opportunity to acquire stock ownership in the Company. The Plan provides for
the granting to employees of the Company (including officers and employee
directors) of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code ("ISOs") and for the grant of nonstatutory stock
options ("NSOs") to employees, consultants and nonemployee directors of the
Company. To the extent an optionee would have the right in any calendar year
to exercise for the first time ISOs for shares having an aggregate fair market
value (under all plans of the Company and determined for each share as of the
grant date) in excess of $100,000, any such excess options shall be
automatically converted to NSOs.
The Plan is administered by the Board or a committee thereof (the
"Administrator"). The Administrator determines the type and terms of options
granted under the Plan, including the number of shares covered, exercise
price, term and condition for exercise of the option. The exercise price of
all ISOs granted under the Plan must be at least 100% of the fair market value
of the Common Stock of the Company on the grant date. The term of an ISO may
not exceed ten years from the date of grant. With respect to any participant
who owns stock possessing more than 10% of the voting power of all classes of
stock of the Company, the exercise price of any ISO granted shall be at least
110% of the fair market value of the Common Stock on the grant date and the
term of such option may not exceed five years. Payment of the exercise price
may be in cash, check, or, at the discretion of the Administrator, by
promissory notes or shares of stock held by the optionee, pursuant to a
"cashless exercise/sale" through a broker, or a combination thereof.
Except as otherwise determined by the Administrator as set forth in an
option agreement, no option may be transferred by the optionee other than by
will or the laws of descent and distribution and, during the lifetime of an
optionee, only the optionee may exercise an option. All options shall be
exercisable on or after each vesting date in accordance with the terms set
forth in the option agreement.
All options will become fully vested and immediately exercisable upon
notice from the Administrator at least 30 days prior to the consummation of a
transaction which constitutes a change in control of the Company and will
terminate at the end of such 30 day period. A "change in control" occurs upon
(i) an acquisition by any person of beneficial ownership of securities
representing a majority of the voting power of the then outstanding securities
of the Company, (ii) a sale of all or substantially all of the Company's
assets, or (iii) the consummation of a merger or consolidation of the Company
in which the holders of securities of the Company immediately prior to such
event hold in the aggregate less than a majority of the securities of the
Company immediately after such event.
8
<PAGE>
The Board may amend, alter, suspend, or discontinue the Plan as long as
such action does not adversely affect any outstanding option except to conform
the Plan or any ISOs granted thereunder to the requirements of federal or
other tax laws relating to incentive stock option plans. No amendment,
alteration, suspension or discontinuance shall require shareholder approval
unless (i) shareholder approval is required to preserve incentive stock option
treatment for federal income tax purposes or (ii) where otherwise deemed
advisable by the Board. No options may be granted under the Plan after
September 2005, ten years from the date of its adoption by the Board.
Certain Federal Income Tax Consequences
THE FOLLOWING SUMMARY OF FEDERAL TAX CONSEQUENCES IS BASED UPON EXISTING
STATUTES, REGULATIONS AND INTERPRETATIONS THEREOF. THE APPLICABLE RULES ARE
COMPLEX, AND INCOME TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH PLAN PARTICIPANT. THIS PROXY STATEMENT DESCRIBES FEDERAL
INCOME TAX CONSEQUENCES OF GENERAL APPLICABILITY, BUT DOES NOT PURPORT TO
DESCRIBE EITHER PARTICULAR CONSEQUENCES TO EACH INDIVIDUAL PLAN PARTICIPANT OR
FOREIGN, STATE OR LOCAL INCOME TAX CONSEQUENCES, WHICH MAY DIFFER FROM THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
Incentive Stock Options. ISOs are intended to constitute "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code. ISOs
may be granted only to employees of the Company (including directors who are
also employees). An optionee does not recognize taxable income upon either the
grant or exercise of an ISO, and the Company receives no deduction. However,
the excess of the fair market value of the shares purchased upon exercise over
the option exercise price (the "option spread") is includible in the
optionee's "alternative minimum taxable income" ("AMTI") for purposes of the
alternative minimum tax ("AMT"). The option spread is generally measured on
the date of exercise and is includible in AMTI in the year of exercise.
Special rules regarding the time of AMTI inclusion may apply for shares
subject to a repurchase right or other "substantial risk of forfeiture."
If an optionee holds the shares purchased under an ISO for at least two
years from the date the ISO was granted and for at least one year from the
date the ISO was exercised, any gain from a sale of the shares other than to
the Company is taxable as long term capital gain. Under these circumstances,
the Company would not be entitled to a tax deduction at the time the ISO was
exercised or at the time the stock was sold. If an optionee were to dispose of
stock acquired pursuant to an ISO before the end of the required holding
periods (a "Disqualifying Disposition"), the amount by which the market value
of the stock at the time the ISO was exercised exceeded the exercise price
(or, if less, the amount of gain realized on the sale) would be taxable as
ordinary income, and the Company would be entitled to a corresponding tax
deduction. Such income is subject to information reporting requirements and
may become subject to withholding. Gain from a Disqualifying Disposition in
excess of the amount required to be recognized as ordinary income is capital
gain, and is "long term" gain if the shares have been held more than one year
as of the date of sale. Optionees are required to notify the Company
immediately prior to making a Disqualifying Disposition. If the stock sold in
the Disqualifying Disposition had been acquired subject to a "substantial risk
of forfeiture," such as a requirement to remain an employee for a period of
time, the optionee's holding period for purposes of determining whether any
capital gain or loss on sale is long-term will generally not begin until the
restriction lapses unless the optionee files an election under Section 83(b)
of the Internal Revenue Code (a "Section 83(b) Election"). If stock is sold to
the Company rather than to a third party, the sale may not produce capital
gain or loss. A sale of shares to the Company will constitute a redemption of
such shares, which could be taxable as a dividend unless the redemption is
"not necessarily equivalent to a dividend" within the meaning of the Internal
Revenue Code.
If an optionee pays for ISO shares with shares of the Company acquired
under an ISO or a qualified employee stock purchase plan ("statutory option
stock"), the tender of shares is a Disqualifying Disposition of the statutory
option stock if the above described (or other applicable) holding periods
respecting those shares
9
<PAGE>
have not been satisfied. If the holding periods with respect to the statutory
option stock are satisfied, or the shares were not acquired under a statutory
stock option of the Company, then any appreciation in value of the surrendered
shares is not taxable upon surrender. Special basis and holding period rules
apply where previously-owned stock is used to exercise an ISO.
The present position of the Internal Revenue Service appears to be that
income and employment withholding taxes are not imposed upon the exercise of
an ISO or the sale of ISO shares. The Internal Revenue Service is studying
this position and may change it at any time, possibly with retroactive effect.
Nonstatutory Stock Options. An optionee is not taxable upon the award of a
NSO. Federal income tax consequences upon exercise will depend upon whether
the shares thereby acquired are subject to a "substantial risk of forfeiture."
If the shares are not subject to a substantial risk of forfeiture, or if they
are so restricted and the optionee files a Section 83(b) Election with respect
to the shares, the optionee will have ordinary income at the time of exercise
measured by the option spread on the exercise date. The optionee's tax basis
in the shares will be their fair market value on the date of exercise, and the
holding period for purposes of determining whether capital gain or loss upon
sale is long- or short-term also will begin on that date. If the shares are
subject to a substantial risk of forfeiture and no Section 83(b) Election is
filed, the optionee will not be taxed upon exercise, but instead will have
ordinary income, on the date the restrictions lapse, in an amount equal to the
difference between the amount paid for the shares under the option and their
fair market value as of the date of lapse; in addition, the optionee's holding
period will begin on the date of lapse.
Whether or not the shares are subject to a substantial risk of forfeiture,
the amount of ordinary income taxable to an optionee who was an employee at
the time of grant constitutes "supplemental wages" subject to withholding of
income and employment taxes by the Company, and the Company receives a
corresponding income tax deduction.
Upon sale, other than to the Company, of shares acquired under a NSO, an
optionee generally will recognize capital gain or loss to the extent of the
difference between the sale price and the optionee's tax basis in the shares,
which will be long-term gain or loss if the employee's holding period in the
shares is more than one year. If stock is sold to the Company rather than to a
third party, the sale may not produce capital gain or loss. A sale of shares
to the Company will constitute a redemption of such shares, which could be
taxable as a dividend unless the redemption is "not necessarily equivalent to
a dividend" within the meaning of the Internal Revenue Code.
If an optionee tenders Common Stock (other than statutory option stock) to
pay all or part of the exercise price of a NSO, the optionee will not have a
taxable gain or deductible loss on the surrendered shares. Instead, shares
acquired upon exercise that are equal in value to the fair market value of the
shares surrendered in payment are treated as if they had been substituted for
the surrendered shares, taking as their basis and holding period the basis and
holding period that the optionee had in the surrendered shares. The additional
shares are treated as newly acquired, are taxable to the optionee, and have a
basis equal to their fair market value on the exercise date.
If the surrendered shares are statutory option stock as described above
under "Incentive Stock Options", with respect to which the applicable holding
period requirements for favorable income tax treatment have not expired, then
the newly acquired shares substituted for the statutory option shares should
remain subject to the federal income tax rules governing the surrendered
shares, but the surrender should not constitute a Disqualifying Disposition of
the surrendered stock.
10
<PAGE>
Plan Benefits
The following table shows the number of shares of Common Stock issuable upon
exercise of options granted to the named groups under the Plan during the
fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Number of
Name and Position Options(1)
- ----------------- ----------
<S> <C>
Executive Group...................................................... 170,000
Non-Executive Director Group......................................... 20,000
Non-Executive Officer Employee Group................................. 101,500
</TABLE>
- --------
(1) All options granted at fair market value as of the date of grant.
Proposed Amendment
At the Annual Meeting, the Company's shareholders will be asked to approve
an amendment to the Plan to increase by 800,000 the number of shares reserved
for issuance under the Plan.
Required Vote
Approval of the amendment to the Plan requires the affirmative vote of a
majority of the shares of the Company's Common Stock voting in person or by
proxy on such proposal at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE AMENDMENT TO THE PLAN
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent auditors,
to audit the financial statements of the Company for the fiscal year ending
December 31, 1999. Ernst & Young LLP has audited the Company's financial
statements since its inception. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting and will have the opportunity to
make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
Required Vote
Approval of the appointment of the independent auditors requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock voting in person or by proxy on such proposal at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
11
<PAGE>
SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
at the Company's 2000 meeting of shareholders must be received by the
Secretary of the Company no later than February 2, 2000 in order to be
included in the proxy soliciting material relating to that meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is
the intention of the persons named in the enclosed proxy to vote the shares
they represent as the Board may recommend.
THE BOARD OF DIRECTORS
Dated: May 3, 1999
12
<PAGE>
ANNEX A
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
OF
DEPOMED, INC.
1. PURPOSES OF THE PLAN
The purposes of the 1995 Stock Option Plan (the "Plan") of DepoMed, Inc., a
California corporation (the "Company"), are to: (a) encourage selected
employees, directors and consultants to improve operations and increase profits
of the Company; (b) encourage selected employees, directors and consultants to
accept or continue employment or association with the Company or its Affiliates;
and (c) increase the interest of selected employees, directors and consultants
in the Company's welfare through participation in the growth in value of the
common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonstatutory
options" ("NSOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a full-time employee
of the Company or of any Affiliate (as defined below) of the Company is eligible
to receive NSOs or ISOs under this Plan. Every person who at the date of grant
is a consultant to, or non-employee director of, the Company or any Affiliate
(as defined below) of the Company is eligible to receive NSOs under this Plan.
The term "Affiliate" as used in the Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer or
director who is an employee, of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN
(a) Number and Source of Shares. Subject to the provisions of Section 6.1.1
---------------------------
of the Plan, the total number of shares of stock which may be issued under
options granted pursuant to this Plan shall not exceed 1,800,000 shares of
Common Stock. The shares covered by the portion of any grant under the Plan
which expires unexercised shall become available again for grants under the
Plan.
(b) Individual Limitation. The Company may not issue options with a fair
---------------------
market value exercise price as of the date of grant covering in the aggregate
more than 500,000 shares of Common Stock to any one participant in any one-year
period.
<PAGE>
4. ADMINISTRATION
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board") or, either in its entirety or only insofar as required
pursuant to Section 4(b) hereof, by a committee (the "Committee") of at least
two Board members to which administration of the Plan, or of part of the Plan,
is delegated (in either case, the "Administrator").
(b) Subject to the other provisions of this Plan, the Administrator shall
have the authority, in its discretion: (i) to grant Options; (ii) to determine
the fair market value of the Common Stock subject to Options; (iii) to determine
the exercise price of Options granted; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted, and the number of
shares subject to each Option; (v) to interpret this Plan; (vi) to prescribe,
amend, and rescind rules and regulations relating to this Plan; (vii) to
determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to accelerate the exercise date of any Option; (xi) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Option; and (xii) to make all other determinations
deemed necessary or advisable for the administration of this Plan. The
Administrator may delegate nondiscretionary administrative duties to such
employees of the Company as it deems proper.
(c) All questions of interpretation, implementation, and application of
this Plan shall be determined by the Administrator. Such determinations shall be
final and binding on all persons.
(d) With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if any, transactions
under this Plan are intended to comply with the applicable conditions of Rule
16b-3, or any successor rule thereto. To the extent any provision of this Plan
or action by the Administrator fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Administrator.
Notwithstanding the above, it shall be the responsibility of such persons, not
of the Company or the Administrator, to comply with the requirements of Section
16 of the Exchange Act; and neither the Company nor the Administrator shall be
liable if this Plan or any transaction under this Plan fails to comply with the
applicable conditions of Rule 16b-3 or any successor rule thereto, or if any
such person incurs any liability under Section 16 of the Exchange Act.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after ten years from the
date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option agreement, in
form
2
<PAGE>
satisfactory to the Company, executed by the Company and the person to whom such
Option is granted; provided, however, that the failure by the Company, the
optionee, or both to execute such an agreement shall not invalidate the granting
of an Option, although the exercise of each option shall be subject to Section
6.1.3.
(c) The stock option agreement shall specify whether each Option it
evidences is a NSO or an ISO.
(d) Subject to Section 6.2.3 with respect to ISOs, the Administrator may
approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1. NSOs shall not be subject to the terms and
conditions set forth in Section 6.2.
6.1. Terms and Conditions to Which All Options are Subject.
-----------------------------------------------------
All Options granted under this Plan shall be subject to the following terms
and conditions:
6.1.1. Changes in Capital Structure. Subject to Section 6.1.2, if
----------------------------
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in (a) the number and class
of shares of stock subject to this Plan and each Option outstanding under this
Plan, and (b) the exercise price of each outstanding Option; provided, however,
that the Company shall not be required to issue fractional shares as a result of
any such adjustments. Each such adjustment shall be subject to approval by the
Board in its sole discretion.
6.1.2. Change in Control.
-----------------
(a) In the event of the proposed dissolution or liquidation of
the Company, the Administrator shall notify each optionee at least 30 days prior
to such proposed action. To the extent not previously exercised, all Options
will terminate immediately prior to the consummation of such proposed action.
(b) In the event of a "change in control" of the Company,
options granted pursuant to the Plan shall automatically be accelerated in full
so as to become completely vested and fully exercisable. In such event, the
Administrator shall notify each optionee at least 30 days prior to such proposed
action that the options shall be fully exercisable for a period of 30 days from
the date of such notice, and options shall terminate upon the expiration of such
30-day period. In the event of a "change in control" of the Company, any right
of repurchase pursuant to Section 6.1.8 shall expire.
3
<PAGE>
For purposes of the foregoing, a change in control means the
occurrence of either of the following:
(i) any "person" (as used in Section 13(d) of the Securities
Exchange Act of 1934 and the rules promulgated thereunder) becomes the
"beneficial owner" (as defined in Rule 13d-3) of securities representing a
majority of the voting power of the then outstanding securities of the Company;
or
(ii) a sale of assets involving all or substantially all of
the assets of the Company, or a merger or consolidation of the Company in which
the holders of securities of the Company immediately prior to such event hold in
the aggregate less than a majority of the securities of the Company immediately
after such event.
6.1.3. Time of Option Exercise. Subject to Section 5 and Section
-----------------------
6.2.4, Options granted under this Plan shall be exercisable (a) immediately as
of the effective date of the stock option agreement granting the Option, or (b)
in accordance with a schedule related to the date of the grant of the Option,
the date of first employment, or such other date as may be set by the
Administrator (in any case, the "Vesting Base Date") and specified in the
written stock option agreement relating to such Option. In any case, no Option
shall be exercisable until a written stock option agreement in form satisfactory
to the Company is executed by the Company and the optionee.
6.1.4. Option Grant Date. Except in the case of advance approvals
-----------------
described in Section 5(d), the date of grant of an Option under this Plan shall
be the date as of which the Administrator approves the grant.
6.1.5. Nonassignability of Option Rights. Except as otherwise
---------------------------------
determined by the Administrator, no Option granted under this Plan shall be
assignable or otherwise transferable by the optionee except by will or by the
laws of descent and distribution. During the life of the optionee, except as
otherwise determined by the Administrator and expressly set forth in the Option
Agreement, an Option shall be exercisable only by the optionee.
6.1.6. Payment. Except as provided below, payment in full, in cash,
-------
shall be made for all stock purchased at the time written notice of exercise of
an Option is given to the Company, and proceeds of any payment shall constitute
general funds of the Company. At the time an Option is granted or exercised, the
Administrator, in the exercise of its absolute discretion after considering any
tax or accounting consequences, may authorize any one or more of the following
additional methods of payment:
(a) Acceptance of the optionee's full recourse promissory note
for all or part of the Option price, payable on such terms and bearing such
interest rate as determined by the Administrator (but in no event less than the
minimum interest rate specified under the Code at which no additional interest
would be imputed and in no event more than the maximum
4
<PAGE>
interest rate allowed under applicable usury laws), which promissory note may be
either secured or unsecured in such manner as the Administrator shall approve
(including, without limitation, by a security interest in the shares of the
Company); and
(b) Delivery by the optionee of Common Stock already owned by
the optionee for all or part of the Option price, provided the value (determined
as set forth in Section 6.1.11) of such Common Stock is equal on the date of
exercise to the Option price, or such portion thereof as the optionee is
authorized to pay by delivery of such stock; provided, however, that if an
optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of Common
Stock without the consent of the Administrator.
(c) Exercise of an Option may be made pursuant to a "cashless
exercise/sale" procedure pursuant to which funds to pay for exercise of the
Option are delivered to the Company by a broker upon receipt of stock
certificates from the Company, or pursuant to which optionees obtain margin
loans from brokers to fund the exercise of the Option.
6.1.7. Termination of Employment. If for any reason other than death
-------------------------
or disability, an optionee ceases to be employed by the Company or any of its
Affiliates (such event being called a "Termination"), Options held at the date
of Termination (to the extent then exercisable) may be exercised in whole or in
part at any time within thirty days of the date of such Termination, or such
other period as is specified in the Option Agreement (but in no event after the
Expiration Date); provided, that if such exercise of the Option would result in
liability for the optionee under Section 16(b) of the Exchange Act, then such
one-month period automatically shall be extended until the tenth day following
the last date upon which optionee has any liability under Section 16(b) (but in
no event after the Expiration Date). If an optionee dies or becomes disabled
(within the meaning of Section 22(e)(3) of the Code) while employed by the
Company or an Affiliate or within the period that the Option remains exercisable
after Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the optionee's personal
representative or by the person to whom the Option is transferred by devise or
the laws of descent and distribution, at any time within twelve months after the
death or twelve months after the disability of the optionee, or such other
period as is specified in the Option Agreement (but in no event after the
Expiration Date). For purposes of this Section 6.1.7, "employment" includes
service as a director or as a consultant. For purposes of this Section 6.1.7, an
optionee's employment shall not be deemed to terminate by reason of sick leave,
military leave or other leave of absence approved by the Administrator, if the
period of any such leave does not exceed 90 days or, if longer, if the
optionee's right to reemployment by the Company or any Affiliate is guaranteed
either contractually or by statute.
6.1.8. Repurchase of Stock. At the option of the Administrator, the
-------------------
stock to be delivered pursuant to the exercise of any Option granted to an
employee, director or consultant under this Plan may be subject to a right of
repurchase in favor of the Company with respect to any employee, or director or
consultant whose employment, or director or consulting
5
<PAGE>
relationship with the Company is terminated.
Determination of the number of shares subject to any such right of
repurchase shall be made as of the date the employee's employment as an
employee, consultant or director of the Company terminates, not as of the date
that any Option granted to such employee, director or consultant is thereafter
exercised.
6.1.9. Withholding and Employment Taxes. At the time of exercise of
--------------------------------
an Option or at such other time as the amount of such obligations becomes
determinable (the "Tax Date"), the optionee shall remit to the Company in cash
all applicable federal and state withholding and employment taxes. If authorized
by the Administrator in its sole discretion after considering any tax or
accounting consequences, an optionee may elect to (i) deliver a promissory note
on such terms as the Administrator deems appropriate, (ii) tender to the Company
previously owned shares of Stock or other securities of the Company, or (iii)
have shares of Common Stock which are acquired upon exercise of the Option
withheld by the Company to pay some or all of the amount of tax that is required
by law to be withheld by the Company as a result of the exercise of such Option.
Any securities tendered or withheld in accordance with this Section 6.1.9
shall be valued by the Company as of the Tax Date.
6.1.10. Other Provisions. Each Option granted under this Plan may
----------------
contain such other terms, provisions, and conditions not inconsistent with this
Plan as may be determined by the Administrator, and each ISO granted under this
Plan shall include such provisions and conditions as are necessary to qualify
the Option as an "incentive stock option" within the meaning of Section 422 of
the Code.
6.1.11. Determination of Value. For purposes of the Plan, the value
----------------------
of Common Stock or other securities of the Company shall be determined as
follows:
(a) If the stock of the Company is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation System, its fair market value shall be the closing sales
price for such stock or the closing bid if no sales were reported, as quoted on
such system or exchange (or the largest such exchange) for the date the value is
to be determined (or if there are no sales for such date, then for the last
preceding business day on which there were sales), as reported n the Wall Street
Journal or similar publication.
(b) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding
6
<PAGE>
business day on which there were quoted prices).
(c) In the absence of an established market for the stock, the
fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry and its management, and the values of stock
of other corporations in the same or a similar line of business.
6.1.12. Option Term. Subject to Section 6.2.5, no Option shall be
-----------
exercisable more than ten years after the date of grant, or such lesser period
of time as is set forth in the stock option agreement (the end of the maximum
exercise period stated in the stock option agreement is referred to in this Plan
as the "Expiration Date").
6.2. TERMS AND CONDITIONS TO WHICH ONLY ISOS ARE SUBJECT. Options granted
---------------------------------------------------
under this Plan which are designated as ISOs shall be subject to the following
terms and conditions:
6.2.1. Exercise Price. The exercise price of an ISO shall be
--------------
determined in accordance with the applicable provisions of the Code and shall in
no event be less than the fair market value (determined in accordance with
Section 6.1.11) of the stock covered by the Option at the time the Option is
granted; provided, however, that the exercise price of any ISO granted to any
person who owns, directly or by attribution under the Code currently Section
424(d), stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any Affiliate (a "Ten Percent
Stockholder") shall in no event be less than 110% of the fair market value
(determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.
6.2.2. Disqualifying Dispositions. If stock acquired by exercise of
--------------------------
an ISO granted pursuant to this Plan is disposed of in a "disqualifying
disposition" within the meaning of Section 422 of the Code, the holder of the
stock immediately before the disposition shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such other
information regarding the Option as the Company may reasonably require.
6.2.3. Grant Date. If an ISO is granted in anticipation of employment
----------
as provided in Section 5(d), the Option shall be deemed granted, without further
approval, on the date the grantee assumes the employment relationship forming
the basis for such grant, and, in addition, satisfies all requirements of this
Plan for Options granted on that date.
6.2.4. Vesting. Notwithstanding any other provision of this Plan,
-------
ISOs granted under all incentive stock option plans of the Company and its
subsidiaries may not "vest" for more than $100,000 in fair market value of stock
(measured on the grant dates(s)) in any calendar year. For purposes of the
preceding sentence, an option "vests" when it first becomes exercisable.
7
<PAGE>
If, by their terms, such ISOs taken together would vest to a greater extent in a
calendar year, and unless otherwise provided by the Administrator, ISOs with
lower exercise prices shall vest before ISOs with higher exercise prices,
regardless of the grant date.
6.2.5. Term. Notwithstanding Section 6.1.12, no ISO granted to any
----
Ten Percent Stockholder shall be exercisable more than five years after the date
of grant.
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall give written notice to
the Company at its principal executive office, to the attention of the officer
of the Company designated by the Administrator, accompanied by payment of the
exercise price as provided in Section 6.1.6. The date the Company receives
written notice of an exercise hereunder accompanied by payment of the exercise
price will be considered as the date such Option was exercised.
(b) Promptly after receipt of written notice of exercise of an Option, the
Company shall, without stock issue or transfer taxes to the optionee or other
person entitled to exercise the Option, deliver to the optionee or such other
person a certificate or certificates for the requisite number of shares of
stock. An optionee or permitted transferee of an optionee shall not have any
privileges as a stockholder with respect to any shares of stock covered by the
Option until the date of issuance (as evidenced by the appropriate entry on the
books of the Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted thereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
9. CONDITIONS UPON ISSUANCE OF SHARES
Shares of Common Stock shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option 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
"Securities Act").
10. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any limitations
on the power of the Company to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options
other than under the Plan.
8
<PAGE>
11. MARKET STANDOFF
Each optionee, if so requested by the Company or any representative of the
underwriters in connection with any registration of the offering of any
securities of the company under the Securities Act shall not sell or otherwise
transfer any shares of Common Stock acquired upon exercise of Options during the
180-day period following the effective date of a registration statement of the
company filed under the Securities Act; provided, however, that such restriction
shall apply only to the first two registration statements of the Company to
become effective under the Securities Act which includes securities to be sold
on behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restriction until the end of such
180-day period.
12. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue this Plan.
Without the consent of an optionee, no amendment, alteration, suspension or
discontinuance may adversely affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to the requirements of federal or other
tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require stockholder approval unless (a)
stockholder approval is required to preserve incentive stock option treatment
for federal income tax purposes, or (b) the Board otherwise concludes that
stockholder approval is advisable.
9
<PAGE>
PROXY
DEPOMED, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
JUNE 2, 1999
The undersigned shareholder of DepoMed, Inc. (the "Company") hereby
appoints John W. Shell, John W. Fara and John F. Hamilton, and each of them with
full power of substitution to each, the true and lawful attorneys, agents and
proxyholders of the undersigned, and hereby authorizes them to represent and
vote, as specified herein, all of the shares of Common Stock of the Company held
of record by the undersigned on April 28, 1999, at the Annual Meeting of
Shareholders of the Company to be held on June 2, 1999 (the "Annual Meeting") at
9:30 a.m. at 366 Lakeside Drive, Foster City, California and any adjournments or
postponements thereof.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
<PAGE>
{X} Please mark votes as in this example
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED. IN THE ABSENCE OF DIRECTION, THE SHARES WILL BE VOTED FOR THE
PROPOSALS.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS RELATING TO THE ANNUAL MEETING.
<TABLE>
<S> <C>
1. To elect as directors, to hold office until Vote FOR all the nominees (except as directed to
the next meeting of shareholders and until their the contrary) {_}
successors are elected, the five (5) nominees
listed below: Vote WITHHELD from all nominees {_}
John W. Shell, Ph.D.
John W. Fara, Ph.D.
John N. Shell
G. Steven Burrill
W. Leigh Thompson, M.D., Ph.D.
INSTRUCTIONS: To withhold vote for any individual nominee, write the nominee's name in the space
provided below:
- --------------------------------------------------------------------------------------------------------
2. To approve an amendment to the Company's
Amended and Restated 1995 Stock Option Plan to For Abstain Against
increase the number of shares reserved for {_} {_} {_}
issuance thereunder.
3. To ratify the appointment of Ernst & Young
LLP as independent auditors of the Company for
the fiscal year ending December 31, 1999. For Abstain Against
{_} {_} {_}
MARK HERE FOR ADDRESS CHANGE AND
NOTE AT LEFT
{_}
Please sign exactly as name appears hereon. Joint
owners should each sign. Trustees and others
acting in a representative capacity should indicate
the capacity in which they sign and give their full
title. If a corporation, please have an authorized
officer sign and indicate the full corporate name.
If a partnership, please sign in partnership name
by an authorized person.
Please mark, sign and date this proxy and return it
promptly whether you plan to attend the meeting or
not. If you do attend, you may vote in person if
you desire.
Signature:_________________ Date:__________ Signature:_________________ Date:__________
_________________ _________________
_________________ _________________
</TABLE>
