<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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 Section240.14a-11(c) or
Section240.14a-12
DEPOMED, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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:
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(4) Date Filed:
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</TABLE>
<PAGE>
DEPOMED, INC.
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 7, 2000
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
7, 2000 at 9:30 a.m., local time, at 1360 O'Brien Drive, Menlo Park, California
94025 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, 2000.
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 18, 2000 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
Menlo Park, California
May 1, 2000
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 7,
2000 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 1360 O'Brien Drive, Menlo Park, California 94025.
The telephone number at that address is (650) 462-5900.
These proxy solicitation materials were mailed on or about May 1, 2000 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 18, 2000 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. At
the Record Date, 7,189,363 shares of the Company's Common Stock, no par value
per share (the "Common Stock"), were issued, outstanding and entitled to vote
and 12,015 of the Company's Series A Preferred Stock, no par value per share
(the "Preferred Stock") were issued and outstanding at the Record Date.
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. Holders of Preferred Stock are not entitled to vote at the Annual
Meeting. 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.
Pursuant to the Securities Purchase Agreement dated as of January 21, 2000,
between the Company and Elan International Services, Ltd. ("EIS"), a
wholly-owned subsidiary of Elan Corporation, plc, for so long as EIS and its
affiliates hold at least 10% of the Company's common stock on a fully-diluted
basis (assuming the conversion of securities, eligible for conversion under
their respective terms, into the Company's common stock), EIS will be entitled
to designate a nominee to serve on the Board. EIS currently holds less than 10%
of the Company's common stock on a fully-diluted basis.
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................... 75 Founder and Chairman Emeritus 1995
John W. Fara, Ph.D.................... 57 Chairman, President and Chief 1995
Executive Officer
John N. Shell......................... 47 Vice President, Operations 1995
G. Steven Burrill..................... 55 Chief Executive Officer, Burrill & 1997
Company
W. Leigh Thompson, M.D., Ph.D......... 61 Chief Scientific Officer (Retired), 1998
Eli Lilly & Company
</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. has served as Chairman of the Board of Directors of the
Company since its inception in August 1995 and served as the Company's President
and Chief Executive Officer from May 1995 to December 1996, when he became the
Company's Chief Scientific Officer. In keeping with longstanding retirement
plans, in March 2000, Dr. Shell resigned as the Company's Chairman and Chief
Scientific Officer, effective April 1, 2000. Dr. Shell will continue to serve as
a consultant and director of the Company. Dr. Shell founded DepoMed
Systems, Inc. ("DSI"), the predecessor to the Company, in 1991, and served as
its Chairman and Chief Executive Officer until its merger with M6
Pharmaceuticals, Inc. ("M6") in 1994, and served as President of the DepoMed
Division of M6 from March 1994 until May 1995. 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 the positions of Vice President of the pharmaceutical
2
<PAGE>
division and corporate Vice President for 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. In March 2000, he
was elected Chairman of the Board of Directors of the Company to succeed
Dr. Shell, effective April 1, 2000. Between 1990 and 1996, he served as
President and Chief Executive Officer at Anergen, Inc., a biotechnology company,
and was 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 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 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 & Company, 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, where he serves as President and Chief Executive
Officer. 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,
Medarex Inc., 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 five meetings during the fiscal year ended
December 31, 1999. Each of the directors 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 a 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 was composed of
Dr. Thompson and Mr. Burrill during
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<PAGE>
fiscal 1999, held one meeting during fiscal 1999. The Company intends to adopt a
formal written charter for the Audit Committee by June 14, 2000. A copy of the
charter will be provided to the Company's shareholders with the Proxy for the
Company's Annual Meeting of Shareholders in 2001.
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, held two meetings in fiscal 1999.
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 July 1999, each of Dr. Thompson and Mr. Burrill received an option to
purchase 15,000 shares of Common Stock at an exercise price of $2.88 per share
and which vests over four years.
4
<PAGE>
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. 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 7,189,363
shares of Common Stock and 12,015 shares of Preferred Stock outstanding as of
April 18, 2000. 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 and warrants exercisable within 60 days of April 18, 2000
are deemed outstanding for computing the percentage of ownership of the person
holding such options or warrants, but are not deemed outstanding for computing
the percentage of any other person.
<TABLE>
<CAPTION>
NUMBER SUBJECT NUMBER OF
NUMBER OF TO OPTIONS AND PERCENTAGE SHARES OF PERCENTAGE
SHARES OF WARRANTS OF SERIES A OF SERIES A
COMMON EXERCISABLE COMMON PREFERRED PREFERRED
NAME OF BENEFICIAL OWNER STOCK WITHIN 60 DAYS STOCK STOCK STOCK
- ------------------------ --------- -------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Elan International Services Ltd.(1)... 714,286 -- 9.9% 12,015 100%
Cygnus, Inc.(2)....................... 400,000 -- 5.6% -- --
John W. Shell(3)...................... 1,566,676 10 21.8% -- --
John W. Fara.......................... 10 286,815 4.0% -- --
John N. Shell......................... 500,010 43,793 7.6% -- --
G. Steven Burrill..................... -- 26,250 * -- --
W. Leigh Thompson(4).................. -- -- * -- --
John F. Hamilton...................... 8,343 75,635 1.2% -- --
Bret Berner........................... -- 16,875 * -- --
All directors and executive officers
as a group (7 persons)(5)........... 2,075,039 449,378 35.1% -- --
</TABLE>
- ------------------------
* Less than one percent.
(1) Elan Services International Ltd., whose address is 102 St. James Court,
Flatts, Smiths Parish, Bermuda, is a wholly-owned subsidiary of Elan
Corporation, plc, whose address is Lincoln House, Lincoln Place, Dublin 2,
Ireland.
(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, including the timely tender for cancellation of certificates
representing shares of M6 held by Cygnus. Cygnus, Inc.'s address is 400
Penobscot Drive, Redwood City, California 94063.
(3) Includes 400,000 shares of Common Stock held on behalf of Cygnus, of which
Dr. Shell disclaims beneficial ownership. See Note 3.
(4) At Dr. Thompson's request, all stock options granted to Dr. Thompson have
been subsequently transferred to Dr. Thompson's daughter and are no longer
beneficially owned by him.
(5) The number of shares of Common Stock includes shares described in Note 3.
5
<PAGE>
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 $100,000 during fiscal 1999
(collectively, the "Named Executive Officers") for services in all capacities as
officers of the Company during fiscal years 1997, 1998 and 1999. None of the
Named Executive Officers earned any bonuses or compensation for the fiscal years
other than as set forth in the table or received any restricted stock awards,
stock appreciation rights or long-term incentive plan payouts.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
FISCAL -------------------- COMPENSATION ALL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- --------------------------- -------- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
John W. Fara, Ph.D................... 1999 $285,000 $110,000 129,167 $456
President, Chief Executive 1998 220,000 55,000 75,000 456
Officer and Director 1997(2) 181,916 100,000 250,000 380
John W. Shell, Ph.D.................. 1999 280,547 60,000 -- 735
Chairman and Chief 1998 220,000 55,000 -- 735
Scientific Officer 1997 185,000 -- -- 735
John F. Hamilton..................... 1999 175,000 35,000 42,500 328
Vice President, Finance and 1998 155,000 22,500 25,000 264
Chief Financial Officer 1997(3) 119,792 -- 90,000 231
John N. Shell........................ 1999 155,000 30,000 27,667 174
Vice President, Operations 1998 118,896 22,500 25,000 160
and Director 1997 93,500 -- 38,666 132
Bret Berner Ph.D..................... 1999 155,000 25,000 22,500 174
Vice President, Product 1998(4) 10,631 10,000 45,000 15
Development
</TABLE>
- ------------------------
(1) Represents payments of term life insurance premiums paid by the Company on
behalf of the Named Executive Officers.
(2) Dr. Fara did not become the Company's full-time President and Chief
Executive Officer until February 1997.
(3) Mr. Hamilton was appointed the Company's Vice President, Finance and Chief
Financial Officer in January 1997. Compensation is for partial year.
(4) Mr. Berner was appointed the Company's Vice President, Product Development
in December 1998. Compensation is for partial year.
6
<PAGE>
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended December 31, 1999 to the Named
Executive Officers. Since inception, the Company has not granted any stock
appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
GRANTED TO APPRECIATION FOR
EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#) YEAR(3) ($/SH)(4) DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John W. Fara, Ph.D................. 129,167 35.5% 2.88 7/16/09 233,543 591,844
John W. Shell, Ph.D................ -- -- -- -- -- --
John F. Hamilton................... 42,500 11.7% 2.88 7/16/09 76,843 194,735
John N. Shell...................... 27,667 7.6% 2.88 7/16/09 50,024 126,770
Bret Berner, Ph.D.................. 22,500 6.2% 2.88 7/16/09 40,682 103,095
</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 363,551 options granted to employees of the Company
in fiscal 1999.
(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, 1999 by the Named
Executive Officers. Value of unexercised options is considered to be the
difference between exercise price and market price of $6.00 per share on
December 31, 1999. No options were exercised by the Named Executive Officers
during fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Fara, Ph.D............................. 237,498 316,669 $774,535 $765,113
John W. Shell, Ph.D............................ -- -- -- --
John F. Hamilton............................... 61,250 96,250 116,719 203,594
John N. Shell.................................. 35,825 63,841 101,600 127,356
Bret Berner, Ph.D.............................. 11,250 56,250 -- 70,313
</TABLE>
The Company did not make any awards during the fiscal year ended December
31, 1999 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.
7
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") of the Board of Directors is
generally responsible for decisions concerning the compensation to be paid to
the Company's executive officers. The Committee consists of Mr. Burrill and
Dr. Thompson, both of whom are non-employee directors of the Company. In
determining compensation policies, the Committee has access to compensation
surveys for regional technology-based companies which compete with the Company
in the recruitment of senior personnel and other executive compensation data and
surveys.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 (the "Exchange Act") that might incorporate this Proxy
Statement or future filings with the Securities and Exchange Commission, in
whole or in part, the following report and the Performance Graph which follows
shall not be deemed to be incorporated by reference into any such filing.
COMPENSATION POLICIES AFFECTING EXECUTIVE OFFICERS
In determining the compensation to be paid to the Company's executive
officers, the Committee employs compensation policies designed to align
compensation with the Company's overall business strategy, values and management
initiatives. These policies are intended to (i) attract and retain executives
whose abilities are critical to the long-term success and competitiveness of the
Company, (ii) recognize individual initiative and achievement, (iii) reward
executives for short- and long-term strategic management and the enhancement of
shareholder value, and (iv) align management compensation with the achievement
of the Company's goals and performance. As a result, compensation consists of
salary and bonus, which provide current incentives, and stock options, which
provide longer-term incentives.
Base salaries for new management employees are determined initially by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for managerial
talent, including a comparison of base salaries for comparable positions at
similar companies of comparable size and capitalization. Annual salary
adjustments are determined by evaluating the competitive marketplace, the
performance of the Company, the performance of the executive and the operational
areas of the company for which he is responsible, and the responsibilities
assumed by the executive. Cash bonus awards are based on the performance of the
executive, the performance of the operational groups reporting to the executive
and the performance of the Company.
The compensation to be paid to any individual executive has not been based
on any particular mathematical formula. Rather, the Committee reviews
objectives, accomplishments, performance and compensation as a whole for each
executive (and all executives), as well as the recommendations of the Chief
Executive Officer, and makes appropriate compensation determinations in the
exercise of its business judgement.
Stock options are an integral part of each executive officer's compensation.
The Committee believes that the opportunity for stock appreciation, through
exercise of stock options that vest over time, closely aligns the interest of
the executive officers with those of its shareholders. Options typically vest in
equal installments over four years and, therefore, encourage an officer to
remain in the employ of the Company. The size of individual awards take into
account the executive officer's salary, the number and vesting schedule of
outstanding options held by the officer and past contributions to the Company.
No one factor is given special weight, but all are part of an overall
assessment.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
In 1999, Dr. John Fara, the Company's Chief Executive Officer, received a
salary increase of 30% over his 1998 salary. The Committee believes that
Dr. Fara's salary is currently in the mid-range of salaries for chief executive
officers of other public technology-based companies of similar size and in the
same
8
<PAGE>
geographic region as the Company. During 1999, Dr. Fara was granted an incentive
stock option to purchase 129,167 shares of the Company's Common Stock, vesting
over four years and expiring in 2009. The exercise price of the option is $2.88
per share, the fair market value of the Company's Common Stock on the date the
option was granted. In 1999, Dr. Fara provided strong leadership to the Company
in its achievement of strategic and financial objectives. Dr. Fara's bonus for
1999 reflects his important contributions to the Company's success in 1999.
POLICY ON DEDUCTIBILITY OF EXECUTIVE OFFICER COMPENSATION
Section 162(m) of the Internal Revenue Code generally places a $1 million
per person limit on the deduction a publicly held corporation may take for
compensation paid to its chief executive officer and its four other highest paid
executive officers unless, in general, the compensation is exempt as
"performance based." For stock compensation to be "performance based," Section
162(m) requires a limit to be set on the number of options that may be granted
to employees subject to the deduction cap. The Board has approved a limit of
500,000 as the maximum number of shares as to which options may be granted to
any employee, consultant or director under the Plan in any one-year period. This
limitation allows gains realized upon exercise of options to qualify as
"performance based" and, therefore, to be excluded from compensation subject to
the $1 million deductibility limit. The Company believes that all of its
compensation paid to date meets the requirements for deductibility. In general,
the Committee considers the deductibility limits of Section 162(m) in
determining executive compensation.
COMPENSATION COMMITTEE
G. Steven Burrill
W. Leigh Thompson, M.D., Ph.D.
9
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's Common Stock with the market value
of the American Stock Exchange (U.S. Companies) and the Center for Research in
Security Prices ("CRSP") Total Return Index for the Nasdaq Biotechnology Stocks
for the period commencing on November 5, 1997 (the date the Company's Common
Stock began trading) and ending on December 31, 1999.
COMPARISON OF 26 MONTH CUMULATIVE TOTAL RETURN*
AMONG DEPOMED, INC., THE AMEX MARKET VALUE INDEX
AND THE NASDAQ BIOTECHNOLOGY INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AMEX NASDAQ
<S> <C> <C> <C>
DEPOMED, INC. MARKET VALUE BIOTECHNOLOGY
11/5/97 $100.00 $100.00 $100.00
12/97 $69.67 $103.84 $94.29
12/98 $129.10 $111.46 $136.04
12/99 $98.36 $142.39 $274.31
</TABLE>
* $100 INVESTED ON 11/5/97 IN STOCK OR ON 10/31/97
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
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 to the Company in the development of strategic partnerships
with pharmaceutical and biotechnology companies. In 1999, the Company paid
Burrill & Company $62,699 pursuant to the agreement. G. Steven Burrill, a
director of the Company, is the Chief Executive Officer of Burrill & Company.
10
<PAGE>
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, 1999, it complied with all Section
16(a) filing requirements applicable to its officers, directors or ten percent
shareholders.
11
<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 (the "Plan") in September
1995 and amended and restated the plan in March 1999 and March 2000 (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 600,000, from
1,800,000 to 2,400,000, 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 Code
("ISOs") and for the grant of nonstatutory stock options ("NSOs") to employees,
consultants and non-employee 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 stock option 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 exerisable 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 majoritity 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
12
<PAGE>
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.
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 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. 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 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 (and will be taxed at certain lower
rates if held for longer periods). 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, is "long term"
gain if the shares have been held more than one year as of the date of sale, and
is entitled to certain lower rates if held for longer periods. 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," 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 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
13
<PAGE>
taxable as a dividend unless the redemption is "not necessarily equivalent to a
dividend" within the meaning of the 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 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 ("IRS") 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 IRS 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. Certain lower rates apply if the shares have been
held for longer periods. 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 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.
14
<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, 1999.
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF OPTIONS(1)
- ----------------- --------------------
<S> <C>
Executive Group........................................... 221,834
Non-Executive Director Group.............................. 30,000
Non-Executive Officer Employee Group...................... 109,217
</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 600,000 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
15
<PAGE>
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, 2000. 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
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 this proposal at the
Annual Meeting is required to ratify the appointment of the independent
auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
at the Company's 2001 meeting of shareholders must be received by the Secretary
of the Company no later than February 7, 2001 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 1, 2000
16
<PAGE>
PROXY DEPOMED, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
JUNE 7, 2000
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 18, 2000, at the Annual Meeting of
Shareholders of the Company to be held on June 7, 2000 (the "Annual Meeting") at
9:30 a.m. at 1360 O'Brien Drive, Menlo Park, California and any adjournments or
postponements thereof.
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>
Item 1. To elect as directors, to hold office until the next meeting
of shareholders and until their successors are elected, the
five (5) nominees listed below:
NOMINEES: John W. Shell, Ph.D., John W. Fara, Ph.D.,
John N. Shell, G. Steven Burrill, W. Leigh
Thompson, M.D., Ph.D.
o For
o Withheld
o ------------------------------------------------------------
For all nominees except as noted above
Item 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 thereunder.
o FOR o AGAINST o ABSTAIN
</TABLE>
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
<PAGE>
<TABLE>
<S> <C>
Item 3. To ratify the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year
ending December 31, 2000. o FOR o AGAINST o ABSTAIN
</TABLE>
o Mark here for address change and note below
<TABLE>
<S> <C>
NOTE: 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.
Signature:
--------------------------------------------
Date:
------------------------------------------------
Signature:
--------------------------------------------
Date:
------------------------------------------------
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.
</TABLE>
