<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
<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 Section 240.14a-11(c) or
Section 240.14a-12
</TABLE>
<TABLE>
<S> <C>
MICROCIDE PHARMACEUTICALS, 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
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
/ / 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:
----------------------------------------------------------
(4) Date Filed:
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</TABLE>
<PAGE>
[LOGO]
May 15, 2000
Dear Stockholders:
It is my pleasure to invite you to the Annual Meeting of Stockholders of
Microcide Pharmaceuticals, Inc. to be held on Thursday, June 15, 2000 at
9:00 a.m. at Microcide's offices located at 850 Maude Avenue, Mountain View,
California. The Notice of the Annual Meeting and the Proxy Statement attached,
describe the business to be conducted at the meeting.
I hope you will be able to join us. If you are unable to attend this year's
meeting, you can ensure your representation by completing the enclosed Proxy and
returning it to us promptly.
Thank you for your interest and participation in the affairs of Microcide
Pharmaceuticals.
Sincerely,
/s/ James E. Rurka
James E. Rurka
President, Chief Executive Officer and
Acting Chief Financial Officer
<PAGE>
MICROCIDE PHARMACEUTICALS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Microcide Pharmaceuticals, Inc., a Delaware corporation (the Company), will be
held on Thursday, June 15, 2000, at 9:00 a.m. local time, at the Company's
offices located at 850 Maude Avenue, Mountain View, California 94043 for the
following purposes:
1) To elect three Class I directors for a term of three years to expire at
the Company's 2003 Annual Meeting of Stockholders.
2) To increase the number of shares of Common Stock reserved for issuance
under the Company's 1993 Amended Incentive Stock Plan from 2,580,000 to
3,030,000 shares.
3) To ratify the appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 2000.
4) To transact such other business as may properly come before the meeting
or any adjournment thereof.
These items of business are more fully described in the Proxy Statement
accompanying this notice.
Only stockholders of record at the close of business on April 20, 2000 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to sign and
return the enclosed Proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if the stockholder has returned a proxy.
By order of the Board of Directors
/s/ Michael J. O'Donnell
Michael J. O'Donnell
Secretary
Mountain View, California
May 15, 2000
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE>
MICROCIDE PHARMACEUTICALS, INC.
PROXY STATEMENT FOR 2000
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Microcide Pharmaceuticals, Inc., a Delaware corporation (the Company), for use
at the Annual Meeting of Stockholders to be held on Thursday, June 15, 2000, at
9:00 a.m., local time, or at any adjournment thereof, for the purposes set forth
in this Proxy Statement and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Company's offices located
at 850 Maude Avenue, Mountain View, California 94043. The Company's telephone
number at that address is (650) 428-1550.
These proxy solicitation materials were mailed on or about May 15, 2000 to
all stockholders entitled to vote at the meeting.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on April 20, 2000 are
entitled to notice of the meeting and to vote at the meeting. At the record
date, 11,293,267 shares of the Company's Common Stock were issued and
outstanding and held of record by approximately 139 stockholders.
SOLICITATION OF PROXIES
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegraph, or
personal solicitations by directors, officers, or employees of the Company. No
additional compensation will be paid for any such services.
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 meeting and voting in person.
VOTING PROCEDURE
Each stockholder is entitled to one vote for each share held. In the
election of directors, each stockholder will be entitled to vote for three
nominees, and the three nominees with the greatest number of votes will be
elected. On all other matters, each share has one vote.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2000 Annual Meeting of Stockholders must
have been received by the Company no later than February 15, 2001 in order that
they may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Company's Restated Certificate of Incorporation and Bylaws provide for a
Board of Directors that is divided into three classes. The directors in Class I
hold office until the 2000 Annual Meeting of Stockholders, the directors in
Class II hold office until the 2001 Annual Meeting of Stockholders, and the
directors in Class III hold office until the 2002 Annual Meeting of Stockholders
(or, in each case, until their successors are duly elected and qualified or
their earlier resignation, removal from office or death), and, after each such
election, the directors in each such case will then serve in succeeding terms of
three years and until their successors are duly elected and qualified.
The Company currently has seven directors, with three directors in Class I,
two directors in Class II, and two directors in Class III. The terms of office
of the Class I directors, Daniel L. Kisner, M.D., David Schnell, M.D. and Mark
B. Skaletsky expire at the 2000 Annual Meeting of Stockholders. The terms of
office of the Class II directors, Hugh Y. Rienhoff, Jr., M.D. and John P. Walker
expire at the Company's 2001 Annual Meeting of Stockholders. The terms of office
of the Class III directors James E. Rurka and Keith A. Bostian, Ph.D. expire at
the 2002 Annual Meeting of Stockholders.
Three Class I directors are to be elected at the 2000 Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's nominees named below. In the event
that any nominee of the Company is unable or declines to serve as a director at
the time of the Annual Meeting of Stockholders, the proxies will be voted for
any nominee who shall be designated by the present Board of Directors to fill
the vacancy. It is not expected that any nominee will be unable or will decline
to serve as a director. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner as will assure the election of as many of the nominees
listed below as possible, and in such event the specific nominees to be voted
for will be determined by the proxy holders.
The nominees, and certain information about them as of December 31, 1999,
are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE COMPANY POSITIONS SINCE
- --------------- -------- ----------------- --------
<S> <C> <C> <C>
Daniel L. Kisner, M.D.......................... 53 Director 1998
David Schnell, M.D. (1)(2)..................... 39 Director 1992
Mark B. Skaletsky (3).......................... 51 Director 1998
</TABLE>
- ------------------------
(1) Member of Compensation Committee.
(2) Member of Nominating Committee.
(3) Member of Audit Committee.
DANIEL L. KISNER, M.D., became a Director of the Company in April 1998.
Since February 1999, Dr. Kisner has been President and Chief Executive Officer
of Caliper Technologies Corp., a designer and manufacturer of drug discovery,
healthcare and biological research devices and systems, and currently serves on
its Board of Directors. He has been a director of Isis Pharmaceuticals, Inc., a
leader in the discovery and development of drugs based on antisense technology.
From March 1991 to February 1993, he held the position of Executive Vice
President at Isis Pharmaceuticals, became its Chief Operating Officer in
February 1993, and was appointed its President in May 1994. From December 1988
to March 1991, Dr. Kisner was Division Vice President of Pharmaceutical
Development for Abbott Laboratories, a researcher and producer of pharmaceutical
products. Dr. Kisner currently serves on the Board of Directors of Anesta
Corporation, a leader in the development of new pharmaceutical products for oral
transmucosal drug administration. Dr. Kisner holds a tenured position in the
Division of Oncology at the
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University of Texas. Dr. Kisner has a B.A. in Biological Sciences from Rutgers
University and a M.D. from Georgetown University.
DAVID SCHNELL, M.D., has served as a Director of the Company since
December 1992 and is a Founder of the Company. Since 1997 he has been a Managing
Partner of Prospect Venture Partners, a venture capital firm. From 1994 to 1997,
he was a Partner at Kleiner Perkins Caufield & Byers, a venture capital firm.
From 1987 to December 1993, he was a marketing and business development
executive at Sandoz Pharmaceuticals Corporation, a research-based provider of
life science products. During 1992 and 1993, he managed Sandoz' venture capital
activities and, with Avalon Medical Partners, a venture capital firm, founded
the Company. Dr. Schnell has a B.S. in Biological Sciences and a M.A. in Health
Services Research from Stanford University and a M.D. from Harvard University.
MARK B. SKALETSKY became a Director of the Company in April 1998. He has
been President and Chief Executive Officer of GelTex Pharmaceuticals, Inc., a
company which researches and develops non-absorbed polymer drugs, since
May 1993. From 1988 to 1993, Mr. Skaletsky served as Chairman and Chief
Executive Officer of Enzytech, Inc., a biotechnology company subsequently
acquired by Alkermes, Inc., a pharmaceutical company applying the tools of
biotechnology to the development of proprietary drug delivery systems. From 1981
to 1988, Mr. Skaletsky served as President and Chief Operating Officer of
Biogen, Inc., a biotechnology company focused on products for multiple
sclerosis, inflammatory, respiratory and kidney diseases, and certain viruses
and cancers. Mr. Skaletsky is currently Chairman of the Biotechnology Industry
Organization (BIO). Mr. Skaletsky is a member of the Board of Trustees of
Bentley College and also serves on the Board of Directors of Isis
Pharmaceuticals, Inc., a leader in the discovery and development of drugs based
on antisense technology, and Leukosite Inc., a company which develops
therapeutic drugs based upon the biology of leukocytes. Mr. Skaletsky has a B.S.
in Finance from Bentley College.
INCUMBENT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE 2000 ANNUAL MEETING
The names and certain other information about the Directors whose terms of
office continue after the 2000 Annual Meeting are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE COMPANY POSITIONS SINCE
- ---------------- -------- ----------------- --------
<S> <C> <C> <C>
Keith A. Bostian, Ph.D................ 48 Director 1992
Hugh Y. Rienhoff, Jr., M.D. (3)....... 47 Director 1994
James E. Rurka (1) (2)................ 54 President, Chief Executive Officer, 1994
Acting Chief Financial Officer and
Director
John P. Walker (1) (2)................ 51 Chairman of the Board 1995
</TABLE>
- ------------------------
(1) Member of Compensation Committee.
(2) Member of Nominating Committee.
(3) Member of Audit Committee.
Mr. Rurka's background is summarized under "Executive Officers" below.
KEITH A. BOSTIAN, PH.D., has served as a Director of the Company since
December 1992 and is a Founder of the Company. From December 1992 through
January 1998, Dr. Bostian served as the Chief Operating Officer of the Company.
Dr. Bostian currently serves as the President and Chief Executive Officer of
Iconix Pharmaceuticals, Inc., a chemical genetics company engaged in genomics
research with broad applicability to human diseases, as well as a member of its
Board of Directors. From June 1987 through December 1992 he was employed at
Merck Research Laboratories, a company engaged in the discovery and development
of pharmaceutical products, where he was Executive Director of Microbiology and
Molecular Genetics. Dr. Bostian was an Assistant and Adjunct Associate Professor
of Biology in the Division of Biology at Brown University from 1982 to 1990 and
was elected to the American Academy of
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Microbiology in 1993. Dr. Bostian has a B.A. in Biology and Chemistry from
Augustana College and a Ph.D. in Biochemistry from Queen Mary College,
University of London.
HUGH Y. RIENHOFF, JR., M.D., became a Director of the Company in July 1994.
Dr. Rienhoff has been Chairman and Chief Executive Officer of Kiva Genetics, a
provider of genetic research to the pharmaceutical industry and academia, since
its founding in April 1998. From March 1997 to April 1998, he was a Director at
Abingworth Management Limited, a venture capital firm, where his focus was on
biotechnology and health care information systems. From July 1992 to
March 1997, he was a Partner at New Enterprise Associates, a venture capital
firm. Dr. Rienhoff was a member of the faculty in the Department of Molecular
Biology and Genetics at The Johns Hopkins University School of Medicine from
July 1989 through June 1992. Dr. Rienhoff trained in internal medicine and human
genetics at Johns Hopkins Hospital, and received a B.A. in English and Biology
from Williams College and a M.D. from The Johns Hopkins University. He currently
serves on the Board of Directors of Aurora Biosciences, a company which designs
and develops proprietary drug discovery systems, services and technologies, and
Iconix Pharmaceuticals, Inc., a chemical genetics company engaged in genomics
research with broad applicability to human diseases.
JOHN P. WALKER has served as a Director of the Company since December 1995
and became Chairman of the Board in February 1999. He has been the Chairman of
the Board of Axys Pharmaceuticals, Inc., a drug discovery and development
company with a proprietary focus in oncology, since 1998 and Chief Executive
Officer since 1993. Prior to joining Axys, Mr. Walker was the Chairman and Chief
Executive Officer of Vitaphore Corporation, a medical device company which was
sold to Union Carbide in 1990. Prior to that, Mr. Walker spent 15 years as an
executive of American Hospital Supply Corporation, a broad-based healthcare
products supplier, most recently serving as President of its American Hospital
Company. He currently also serves on the Board of Directors of Geron
Corporation, a biopharmaceutical company focused on therapeutic and diagnostic
products to treat cancer and other age-related diseases, and one private
company. Mr. Walker has a B.A. from State University of New York at Buffalo and
conducted graduate studies at Northwestern University for Management.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held five meetings and took action by written consent
once during fiscal 1999. There were three committee meetings held in 1999. No
incumbent director attended fewer than 75% of the aggregate of the total number
of meetings of the Board of Directors and the total number of meetings held by
all committees of the Board of Directors on which he served during fiscal 1999.
The Board of Directors has four standing committees: the Compensation
Committee, the Audit Committee, the Option Grant Committee and the Nominating
Committee.
During 1999, directors James E. Rurka, David Schnell, M.D. and John P.
Walker served on the Compensation Committee, which sets guidelines for hiring,
salaries and incentive compensation for employees of the Company other than
executive officers, and makes recommendations to the Board of Directors with
regard to salaries and incentive compensation for executive officers of the
Company. Mr. Rurka, President, Chief Executive Officer and Acting Chief
Financial Officer of the Company, participates in all discussions and decisions
regarding hiring, salaries and incentive compensation for all employees and
consultants of the Company, except that Mr. Rurka is excluded from discussions
regarding his own salary and incentive compensation. The Compensation Committee
held two meetings during fiscal 1999. Each committee member attended the
meetings held during such member's tenure on the committee.
During 1999, directors Mark B. Skaletsky and Hugh Y. Rienhoff, Jr., M.D.
served on the Audit Committee, which reviews the results and scope of the audit
and other services provided by the Company's independent auditors. The Audit
Committee held one meeting during fiscal 1999. Each committee member attended
the meeting held during such member's tenure on the committee.
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During 1999, director James E. Rurka served on the Option Grant Committee
which was established principally to grant stock options to non-officer
employees upon commencement of employment with the Company in accordance with
the guidelines established by the Compensation Committee. The Option Grant
Committee did not meet during fiscal 1999 but did take action by written
consent.
During 1999, directors James E. Rurka, David Schnell, M.D. and John P.
Walker served on the Nominating Committee which interviews, evaluates, nominates
and recommends individuals for membership on the Company's Board of Directors
and committees thereof and nominates specific individuals to be elected as
officers of the Company by the Board of Directors. The Nominating Committee will
consider nominees for directors nominated by stockholders upon submission in
writing to the Secretary of the Company of the names of such nominees in
accordance with the Company's Bylaws. The Nominating Committee did not meet
during fiscal 1999.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company are entitled to participate in the
Company's 1996 Director Option Plan. Each individual who becomes a non-employee
director for the first time will automatically be granted an option to purchase
16,000 shares of Common Stock on the date of his or her election or appointment
to the Board of Directors, provided such individual was not employed by the
Company immediately prior to such time. Such options are exercisable at a price
equal to the fair market value of the Company's Common Stock on the date the
option is granted, and the right to exercise the shares subject to the option
vests over a four-year period. Thereafter, at each annual stockholders meeting,
each non-employee director with at least six months of service on the Board of
Directors will automatically be granted an option to purchase 4,000 shares of
Common Stock (8,000 shares for the Chairman of the Board). Such options are
exercisable at a price equal to the fair market value of the Company's Common
Stock on the date the option is granted, and the right to exercise the shares
subject to the option vests over a one-year period. The Company granted an
option to purchase 16,000 shares of Common Stock to John P. Walker when he was
named Chairman of the Board in February 1999. In June 1999, the Company granted
4,000 options to purchase shares of Common Stock to each of Daniel L. Kisner,
M.D., Hugh Y. Rienhoff, Jr., M.D., David Schnell, M.D. and Mark B. Skaletsky,
and 8,000 options to John P. Walker as Chairman. Keith A. Bostian, Ph.D. did not
receive directors' options in conjunction with his consulting agreement with the
Company, and did not receive any other options pursuant to this agreement.
Effective in 1999, the Company paid each non-employee director a flat fee of
$10,000 per annum, payable quarterly ($15,000 for the Chairman of the Board).
Directors otherwise have received no other fees for services provided in that
capacity but have been reimbursed for out-of-pocket expenses in connection with
attendance at Board of Directors' meetings. Directors receive no compensation
for meetings attended by telephone or for actions taken by written consent.
VOTE REQUIRED
The three nominees receiving the highest number of affirmative votes of the
shares present or represented by proxy and entitled to vote will be elected as
directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum, but have no legal effect under
Delaware law. While there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions and broker non-votes in the
election of directors, the Company believes that both abstentions and broker
non-votes should be counted for purposes of whether a quorum is present at the
Annual Meeting. In the absence of precedent to the contrary, the Company intends
to treat abstentions and broker non-votes with respect to the election of
directors in this manner.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE ELECTION OF THE NOMINEES.
5
<PAGE>
PROPOSAL TWO
AMENDMENT OF 1993 AMENDED INCENTIVE STOCK PLAN
In April 1993, the Company's Board of Directors (the "Board") adopted the
1993 Amended Incentive Stock Plan (the "Stock Plan"), which was approved by the
stockholders in April 1994. Options granted under the Stock Plan may be either
"incentive stock options", as defined in Section 422 of the Code, or
nonstatutory stock options. See "Certain Federal Income Tax Information" below
for information concerning the tax treatment of both incentive stock options and
nonstatutory stock options. The Board of Directors and stockholders of the
Company have previously reserved for issuance 2,580,000 shares of Common Stock
under the Stock Plan. In February 2000, the Board of Directors approved an
amendment to the Stock Plan, subject to stockholder approval, to increase the
shares reserved for issuance thereunder by 450,000 shares to a total of
3,030,000 shares. As of March 31, 2000, options to purchase 1,524,499 shares
were outstanding under the Stock Plan, a total of approximately 683,628 shares
had been issued upon the exercise of options granted under the Stock Plan and
approximately 371,873 shares remained available for future grant.
At the Annual Meeting, the stockholders are being requested to consider and
approve the proposed amendment to the Stock Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 450,000 shares,
bringing the total number of shares issuable under the Stock Plan to 3,030,000
shares.
SUMMARY OF THE STOCK PLAN
GENERAL. The purpose of the Stock Plan is to attract and retain the best
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees and consultants of the
Company and to promote the success of the Company's business. Options granted
under the Stock Plan may be either "incentive stock options," as defined in
Section 422 of the Internal Revenue Code of 1986, as amended ("the Code"), or
nonstatutory stock options. Amounts prospectively allocable under the Stock Plan
for fiscal 2000 are not determinable. For information regarding stock option
grants in fiscal 1999, see "Executive Compensation--Compensation Tables."
ADMINISTRATION. The Stock Plan may generally be administered by the Board
or a Committee appointed by the Board (as applicable, the "Administrator"). The
Administrator may make any determinations deemed necessary or advisable for the
Stock Plan.
ELIGIBILITY. Nonstatutory stock options may be granted under the Stock Plan
to employees and consultants of the Company and any parent or subsidiary of the
Company. Incentive stock options may be granted only to employees. The
Administrator, in its discretion, selects the employees and consultants to whom
options may be granted, the time or times at which such options shall be
granted, and the exercise price and number of shares subject to each such grant.
LIMITATIONS. Section 162(m) of the Code places limits on the deductibility
for federal income tax purposes of compensation paid to certain executive
officers of the Company. In order to preserve the Company's ability to deduct
the compensation income associated with options granted to such persons, the
Stock Plan provides that no employee may be granted, in any fiscal year of the
Company, options to purchase more than 500,000 shares of Common Stock.
Notwithstanding this limit, however, in connection with such individual's
initial employment with the Company, he or she may be granted options to
purchase up to an additional 500,000 shares of Common Stock.
TERMS AND CONDITIONS OF OPTIONS. Each option is evidenced by a stock option
agreement between the Company and the optionee, and is subject to the following
terms and conditions:
(a) EXERCISE PRICE. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an incentive
stock option may not be less than 100% of the fair
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market value of the Common Stock on the date such option is granted; provided,
however, the exercise price of an incentive stock option granted to a 10%
stockholder may not be less than 110% of the fair market value of the Common
Stock on the date such option is granted. The fair market value of the Common
Stock is generally determined with reference to the closing sale price for the
Common Stock (or the closing bid if no sales were reported) on the last market
trading day prior to the date the option is granted.
(b) EXERCISE OF OPTION; FORM OF CONSIDERATION. The Administrator
determines when options become exercisable, and may in its discretion,
accelerate the vesting of any outstanding option. The means of payment for
shares issued upon exercise of an option is specified in each option agreement.
The Stock Plan permits payment to be made by cash, check, promissory note, other
shares of Common Stock of the Company (with some restrictions), cashless
exercises, or any combination thereof.
(c) TERM OF OPTION. The term of an incentive stock option may be no more
than ten (10) years from the date of grant; provided that in the case of an
incentive stock option granted to a 10% stockholder, the term of the option may
be no more than five (5) years from the date of grant. No option may be
exercised after the expiration of its term.
(d) TERMINATION OF EMPLOYMENT. If an optionee's employment or consulting
relationship terminates for any reason (including death or disability), then all
options held by the optionee under the Stock Plan expire on the earlier of
(i) the date set forth in his or her notice of grant or (ii) the expiration date
of such option. The Stock Plan and the option agreement may provide for a longer
period of time for the option to be exercised after the optionee's death or
disability than for other terminations. To the extent the option is exercisable
at the time of such termination, the optionee (or the optionee's estate or the
person who acquires the right to exercise the option by bequest or inheritance)
may exercise all or part of his or her option at any time before termination.
(e) NONTRANSFERABILITY OF OPTIONS. Unless otherwise determined by the
Administrator, options granted under the Stock Plan are not transferable other
than by will or the laws of descent and distribution, and may be exercised
during the optionee's lifetime only by the optionee.
(f) OTHER PROVISIONS. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the Stock Plan as may be
determined by the Administrator.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of stock
subject to the Stock Plan, the number and class of shares of stock subject to
any option outstanding under the Stock Plan, and the exercise price of any such
outstanding option.
In the event of a liquidation or dissolution, any unexercised options will
terminate. The Administrator may, in its sole discretion, provide that each
optionee shall have the right to exercise all of the optionee's options,
including those not otherwise exercisable.
In connection with any merger, consolidation, acquisition of assets or like
occurrence involving the Company, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation. If the successor
corporation refuses to assume the options or to substitute substantially
equivalent options, the Administrator shall have the discretion to allow the
optionee to exercise the option as to all the optioned stock, including shares
not otherwise exercisable. In such event, the Administrator shall notify the
optionee that the option is fully exercisable for fifteen (15) days from the
date of such notice and that the option terminates upon expiration of such
period.
AMENDMENT AND TERMINATION OF THE STOCK PLAN. The Board may amend, alter,
suspend or terminate the Stock Plan, or any part thereof, at any time and for
any reason. However, the Company shall obtain
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stockholder approval for any amendment to the Stock Plan to the extent necessary
and desirable to comply with applicable law. No such action by the Board or
stockholders may alter or impair any option previously granted under the Stock
Plan without the written consent of the optionee. Unless terminated earlier, the
Stock Plan shall terminate ten years from the date of its approval by the
stockholders or the Board of the Company, whichever is earlier.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated as
long-term capital gain or loss. Net capital gains on shares held more than
12 months may be taxed at a maximum federal rate of 20%. Capital losses are
allowed in full against capital gains and up to $3,000 against other income. If
these holding periods are not satisfied, the optionee recognizes ordinary income
at the time of disposition equal to the difference between the exercise price
and the lower of (i) the fair market value of the shares at the date of the
option exercise or (ii) the sale price of the shares. Any gain or loss
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income is treated as long-term or short-term capital gain or
loss, depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% stockholder of the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee.
NONSTATUTORY STOCK OPTIONS. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Upon a disposition of
such shares by the optionee, any difference between the sale price and the
optionee's exercise price, to the extent not recognized as taxable income as
provided above, is treated as long-term or short-term capital gain or loss,
depending on the holding period. Net capital gains on shares held more than
12 months may be taxed at a maximum federal rate of 20%. Capital losses are
allowed in full against capital gains and up to $3,000 against other income.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS
UNDER THE STOCK PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS
THE TAX CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS
OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH
THE EMPLOYEE OR CONSULTANT MAY RESIDE.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares casting
their votes at the Annual Meeting will be required to approve the amendment of
the 1993 Amended Incentive Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE AMENDMENT
OF THE 1993 AMENDED INCENTIVE STOCK PLAN.
8
<PAGE>
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP to audit the financial
statements of the Company for the year ending December 31, 2000, and recommends
that the stockholders ratify the selection. In the event of a negative vote, the
Board will reconsider its selection.
Ernst & Young LLP has audited the Company's financial statements since 1993.
Representatives of Ernst & Young LLP are expected to be present at the meeting,
will have the opportunity to make a statement if they so desire, and are
expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT AUDITORS.
9
<PAGE>
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of April 20,
2000 by (i) each stockholder known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock, (ii) each current director,
(iii) the Company's Chief Executive Officer and each of the other executive
officers of the Company whose total salary and bonus for fiscal year 1999
exceeded $100,000 (together, the "Named Officers") and (iv) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
PERCENT
FIVE PERCENT STOCKHOLDERS, BENEFICIALLY
DIRECTORS AND EXECUTIVE OFFICERS NUMBER OWNED (1)
- -------------------------------- --------- ------------
<S> <C> <C>
BVF Partners L.P............................................ 1,072,107 9.5%
333 West Wacker Drive, Suite 1600
Chicago, IL 60606
Wanger Asset Management, L.P................................ 915,000 8.1%
70 West Madison Street, Suite 3300
Chicago, IL 60602
Johnson & Johnson Development Corporation................... 571,429 5.1%
1 Johnson & Johnson Plaza
New Brunswick, NJ 08933
Pfizer Inc.................................................. 571,429 5.1%
Eastern Point Road
Groton, CT 06340
Keith A. Bostian, Ph.D.(2).................................. 345,458 3.1%
Matthew J. Hogan(3)......................................... 18,841 *
Daniel L. Kisner, M.D.(4)................................... 20,000 *
Caliper Technologies Corp.
605 Fairchild Drive
Mountain View, CA 94043
George H. Miller, Ph.D.(5).................................. 58,750 *
Hugh Y. Rienhoff, Jr., M.D.(6).............................. 11,702 *
Kiva Genetics, Inc.
2375 Garcia Avenue, 2nd Floor
Mountain View, CA 94043
James E. Rurka(7)........................................... 377,796 3.4%
David Schnell, M.D.(8)...................................... 48,547 *
Prospect Venture Partners
435 Tasso Street, #140
Palo Alto, CA 94301
Mark B. Skaletsky(9)........................................ 12,834 *
GelTex Pharmaceuticals, Inc.
Nine Fourth Avenue
Waltham, MA 02154
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PERCENT
FIVE PERCENT STOCKHOLDERS, BENEFICIALLY
DIRECTORS AND EXECUTIVE OFFICERS NUMBER OWNED (1)
- -------------------------------- --------- ------------
<S> <C> <C>
John P. Walker(10).......................................... 35,666 *
Axys Pharmaceuticals, Inc.
180 Kimball Way
So. San Francisco, CA 94080
All directors and executive officers as a group 929,594 8.2%
(9 persons)(11)...........................................
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities, subject to community property laws, where
applicable. Applicable percentage ownership is based on 11,293,267 shares
of Common Stock outstanding as of April 20, 2000.
(2) Includes 256,000 shares held by Dr. Bostian, 16,000 shares held by Arthur
Weil as Trustee for Dr. Bostian's children with respect to which
Dr. Bostian disclaims beneficial ownership, 2,000 shares held by
Dr. Bostian as Custodian for Dr. Bostian's children, and 71,458 shares
issuable to Dr. Bostian pursuant to options exercisable within 60 days of
April 20, 2000.
(3) Includes 18,841 shares held by Mr. Hogan and zero shares issuable to
Mr. Hogan pursuant to options exercisable within 60 days of April 20, 2000.
Mr. Hogan resigned from the Company on June 30, 1999.
(4) Includes 12,000 shares issuable to Dr. Kisner pursuant to options
exercisable within 60 days of April 20, 2000.
(5) Includes 5,000 shares held by Dr. Miller and 53,750 shares issuable to
Dr. Miller pursuant to options exercisable within 60 days of April 20,
2000.
(6) Includes 35 shares held by Dr. Rienhoff and 11,667 shares issuable to
Dr. Rienhoff pursuant to options exercisable within 60 days of April 20,
2000.
(7) Includes 180,608 shares held by Mr. Rurka and 197,188 shares issuable to
Mr. Rurka pursuant to options exercisable within 60 days of April 20, 2000.
(8) Includes 36,880 shares held by Dr. Schnell and 11,667 shares issuable to
Dr. Schnell pursuant to options exercisable within 60 days of April 20,
2000.
(9) Includes 500 shares held by Mr. Skaletsky and 12,334 shares issuable to
Mr. Skaletsky pursuant to options exercisable within 60 days of April 20,
2000.
(10) Includes 15,000 shares held by the Walker Living Trust of which
Mr. Walker is a Trustee and 20,666 shares issuable to Mr. Walker pursuant
to options exercisable within 60 days of April 20, 2000.
(11) Includes 390,730 shares issuable pursuant to options exercisable within
60 days of April 20, 2000.
11
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
The executive officers of the Company and certain information about them as
of December 31, 1999 are listed below:
<TABLE>
<CAPTION>
NAME AGE COMPANY POSITIONS
- ---- -------- -----------------
<S> <C> <C>
James E. Rurka............. 54 President, Chief Executive Officer, Acting Chief
Financial Officer and Director
George H. Miller, Ph.D..... 61 Senior Vice President--Research and Development
Matthew J. Hogan........... 39 Former Chief Financial Officer
</TABLE>
JAMES E. RURKA, President, Chief Executive Officer, Acting Chief Financial
Officer and a Director, joined the Company in February 1994. From August 1983 to
December 1993 he was with Cetus Corporation, subsequently acquired by Chiron
Corporation, a major biotechnology company, where he was most recently President
of the Cetus Oncology Division. Prior to joining Cetus Corporation, Mr. Rurka
held several group marketing and product management positions at Bristol Myers
Squibb, a diversified worldwide health and personal care company, and Schering
Plough Corporation, a research-based company engaged in the discovery,
development, manufacturing and marketing of pharmaceutical products worldwide.
Mr. Rurka currently serves as a director of Iconix Pharmaceuticals, Inc., a
chemical genetics company engaged in genomics research with broad applicability
to human diseases. Mr. Rurka has a B.A. in English with a minor in Business from
Seton Hall University, and he attended Seton Hall University Graduate School of
Business.
MATTHEW J. HOGAN, former Chief Financial Officer, joined the Company in
May 1996. Prior to joining the Company, he held various positions since 1986 in
the investment banking group at Merrill Lynch & Co., a major financial services
company, most recently as a Director focusing on the biotechnology/
pharmaceutical sector. Mr. Hogan holds a B.A. in Economics from Dartmouth
College and a M.B.A. from the Amos Tuck School of Business Administration.
Mr. Hogan resigned from the Company on June 30, 1999.
GEORGE H. MILLER, PH.D., Senior Vice President -- Research and Development,
joined the Company in January 1998. Prior to joining Microcide, Dr. Miller had
spent the previous 23 years at Schering-Plough Research Institute, a
research-based company engaged in the discovery and development of
pharmaceutical products worldwide, most recently as Presidential Fellow --
Infectious Disease and Microbial Products Discovery. Dr. Miller has a B.Sc. and
M.Sc. from Philadelphia College of Pharmacy and Science, and a Ph.D. from
Medical College of Virginia.
12
<PAGE>
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE. The following table sets forth the compensation
paid by the Company to the Chief Executive Officer and each of the other
executive officers of the Company whose total salary and bonus for fiscal year
1999 exceeded $100,000 (collectively the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------- LONG-TERM ALL OTHER
FISCAL BONUS OTHER ANNUAL COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY (1) COMPENSATION OPTIONS/SARS # (2)
- --------------------------- -------- -------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
James E. Rurka..................... 1999 $291,167 $78,750 -- 50,000(3) $ 432
President, and Chief Executive 1998 286,667 25,000 -- 25,000(4) 270
Officer 1997 275,833 -- -- 35,000(5) 270
George H. Miller, Ph.D.............
Senior Vice President--Research 1999 234,270 44,063 18,590(7) 40,000(8) 2,480
and Development(6) 1998 209,278 22,000 88,525(9) 60,000(10) 2,130
Matthew J. Hogan................... 1999 102,084 -- -- 40,000(12) 13,610
Former Chief Financial 1998 176,666 18,000 -- 15,000(13) 270
Officer(11) 1997 165,833 10,365 13,565(14) 15,000(15) 270
</TABLE>
- ------------------------
(1) Represents bonuses earned by the Named Officer based upon his performance
in the year noted but paid in the subsequent year.
(2) Represents amounts paid by the Company on behalf of the officer for term
life insurance policies (the proceeds of which are payable to the officer's
beneficiaries), and in the case of Mr. Hogan, vacation pay due him at
resignation.
(3) Pursuant to the Company's 1993 Amended Incentive Stock Plan, an option to
purchase 50,000 shares of Common Stock at a price of $4.25 per share was
granted to Mr. Rurka in February 1999. Such option vests on a monthly basis
over a four-year period after the date of grant. As of December 31, 1999,
such option was vested with respect to 10,417 shares of Common Stock.
(4) Pursuant to the Company's 1993 Amended Incentive Stock Plan, an option to
purchase 25,000 shares of Common Stock at a price of $8.25 per share was
granted to Mr. Rurka in March 1998. Such option vests on a monthly basis
over a four-year period after the date of grant. As of December 31, 1999,
such option was vested with respect to 10,938 shares of Common Stock.
(5) Pursuant to the Company's 1993 Amended Incentive Stock Plan, an option to
purchase 35,000 shares of Common Stock at a price of $10.75 per share was
granted to Mr. Rurka in May 1997. Such option vests on a monthly basis over
a four year period after the date of grant. As of December 31, 1999, such
option was vested with respect to 22,604 shares of Common Stock.
(6) Dr. Miller joined the Company in January 1998.
(7) Represents reimbursement of expenses incurred by Dr. Miller in connection
with relocating to the Company's geographic region attributed to 1999
compensation.
(8) Pursuant to the Company's 1993 Amended Incentive Stock Plan, an option to
purchase 40,000 shares of Common Stock at a price of $4.25 per share was
granted to Dr. Miller in February 1999. Such option vests on a monthly
basis over a four-year period after the date of grant. As of December 31,
1999, such option was vested with respect to 8,333 shares of Common Stock.
(9) Represents reimbursement of expenses incurred by Dr. Miller in connection
with relocating to the Company's geographic region attributed to 1998
compensation.
13
<PAGE>
(10) Pursuant to the Company's 1993 Amended Incentive Stock Plan, an option to
purchase 60,000 shares of Common Stock at a price of $9.00 per share was
granted to Dr. Miller in January 1998. Such option vests with respect to
25% of the shares subject to the option one year after the date of grant,
and as to the remainder in equal monthly installments over the succeeding
36 months. As of December 31, 1999, such option was vested with respect to
28,750 shares of Common Stock.
(11) Mr. Hogan resigned from the Company on June 30, 1999.
(12) Pursuant to the Company's 1993 Amended Incentive Stock Plan, an option to
purchase 40,000 shares of Common Stock at a price of $4.25 per share was
granted to Mr. Hogan in February 1999. Such option vests on a monthly
basis over a four-year period after the date of grant. As of December 31,
1999, such option was vested with respect to zero shares of Common Stock
(Mr. Hogan resigned on June 30, 1999).
(13) Pursuant to the Company's 1993 Amended Incentive Stock Plan, an option to
purchase 15,000 shares of Common Stock at a price of $8.25 was granted to
Mr. Hogan in March 1998. Such option vests on a monthly basis over a four
year period after the date of grant. As of December 31, 1999, such option
was vested with respect to zero shares of Common Stock (Mr. Hogan resigned
on June 30, 1999).
(14) Represents reimbursement of expenses incurred by Mr. Hogan in connection
with relocating to the Company's geographic region attributed to 1997
compensation.
(15) Pursuant to the Company's 1993 Amended Incentive Stock Plan, an option to
purchase 15,000 shares of Common Stock at a price of $10.75 per share was
granted to Mr. Hogan in May 1997. Such option vests on a monthly basis
over a four year period after the date of grant. As of December 31, 1999,
such option was vested with respect to zero shares of Common Stock
(Mr. Hogan resigned on June 30, 1999).
EMPLOYMENT CONTRACTS. In February 1994, the Company entered into an
employment agreement with James E. Rurka, President and Chief Executive Officer
and a Director of the Company, whose contract expired in 1997 and was not
renewed. The Company currently has no compensatory plan or arrangement with any
of the Named Officers where the amounts to be paid exceed $100,000 and which are
activated upon resignation, termination or retirement of any such executive
officer upon a change in control of the Company.
14
<PAGE>
STOCK OPTION INFORMATION
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth certain
information concerning grants of stock options to each of the Named Officers
during the fiscal year ended December 31, 1999. The table also sets forth
hypothetical gains or option spreads for the options at the end of their
respective ten-year terms. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. Actual gains, if any, on option exercises are
dependent on the future performance of the Company's Common Stock and overall
market conditions.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATE OF
OPTIONS STOCK PRICE
GRANTED TO APPRECIATION FOR
EMPLOYEES EXERCISE OPTIONS TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(1) YEAR PER SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James E. Rurka.......................... 50,000 10.8% $4.25 02/05/09 $136,189 $342,729
President, Chief Executive Officer
and Director
George H. Miller, Ph.D.................. 40,000 8.6% 4.25 02/05/09 108,951 274,184
Senior Vice President Research
and Development
Matthew J. Hogan........................ 40,000 8.6% 4.25 07/30/99 0 0
Former Chief Financial Officer(3)
</TABLE>
- ------------------------
(1) The options referenced in the foregoing table are intended to be incentive
stock options to the extent permitted by applicable law. The Company's 1993
Amended Incentive Stock Plan (the "Incentive Plan") also provides for the
grant of non-qualified stock options. Incentive stock options may be granted
under the Incentive Plan at an exercise price no less than fair market value
on the date of grant. For so long as the Company's Common Stock is listed on
the Nasdaq National Market, the fair market value is the closing sale price
for the Common Stock. Non-qualified options may be granted at an exercise
price of no less than 85% of fair market value on the date of grant. The
above-referenced options generally become exercisable on a monthly basis
over a four-year period after the date of grant. Options generally terminate
on the earlier of thirty days after termination of the optionee's employment
by or services to the Company, or ten years after grant.
(2) The 5% and 10% assumed annualized rates of compound stock price appreciation
are based on the exercise prices shown in the table, are mandated by the
rules of the Securities and Exchange Commission, and do not represent the
Company's estimate or a projection by the Company of future Common Stock
prices.
(3) Mr. Hogan resigned from the Company on June 30, 1999.
15
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
VALUES. The following table sets forth certain information concerning the
number of options exercised by the Named Officers during the fiscal year ended
December 31, 1999, and the number of shares covered by both exercisable and
unexercisable stock options held by the Named Officers as of December 31, 1999.
Also reported are values for "in-the-money" options that represent the positive
spread between the respective exercise prices of outstanding options and the
fair market value of the Company's Common Stock as of December 31, 1999 ($8.875
per share).
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
ON VALUE ----------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Rurka................... 0 $0 174,272 70,728 $1,013,260 $221,740
George H. Miller, Ph.D........... 0 0 37,083 62,917 38,540 146,460
Matthew J. Hogan (1)............. 0 0 0 0 0 0
</TABLE>
- ------------------------
(1) Mr. Hogan, former Chief Financial Officer, resigned on June 30, 1999.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the Board of Directors
reviews and recommends to the Board of Directors for approval the Company's
executive compensation policies. The Committee during 1999 consisted of
directors James E. Rurka, David Schnell, M.D. and John P. Walker. The following
is the report of the Committee describing the compensation policies and
rationales applicable to the Company's executive officers with regard to the
compensation payable to such executive officers for the fiscal year ended
December 31, 1999.
COMPENSATION PHILOSOPHY
The goal of the Company's compensation policies is to align executive
compensation with business objectives and corporate performance, and to attract
and retain executives who contribute to the long-term success and value of the
Company. Compensation for the Company's executive officers consists of a base
salary and potential cash bonus, as well as potential incentive compensation
through stock options and stock ownership. The Committee considers the total
current and potential long-term compensation of each executive officer in
establishing each element of compensation.
16
<PAGE>
BASE SALARY
The base salary component is designed to compensate executive officers
competitively at levels necessary to attract and retain qualified executives in
the pharmaceutical and biotechnology industry. The base salary for each officer
is set on the basis of personal performance, the salary levels in effect for
comparable positions within the Company's principal competitors, and internal
comparability considerations. As a general matter, the base salary for each
executive officer is initially established through negotiation at the time the
officer is hired, taking into account such officer's qualifications, experience,
prior salary, and competitive salary information. Year-to-year adjustments to
each executive officer's base salary are based upon personal performance for the
year and changes in the general level of base salaries of persons in comparable
positions within the industry.
INCENTIVE BONUSES
The Company implemented a formal incentive bonus plan in 1997 pursuant to
which the executive officers of the Company are eligible to receive incentive
cash compensation based upon achievement of corporate goals. The amounts of such
cash bonuses for executive officers other than the Chief Executive Officer are
based upon the recommendation of the Chief Executive Officer, subject to review
and approval of the Compensation Committee and the Board of Directors. The
amount of any cash bonus for the Chief Executive Officer is determined by the
Compensation Committee subject to the review and approval of the Board of
Directors.
LONG-TERM INCENTIVES
The Committee provides the Company's executive officers with long-term
incentive compensation through grants of stock options under the Company's 1993
Amended Incentive Stock Plan and the opportunity to purchase stock under the
1996 Employee Stock Purchase Plan (the "Purchase Plan"). The Committee believes
that stock options provide the Company's executive officers with the opportunity
to purchase and maintain an equity interest in the Company and to share in the
appreciation of the value of the Company's Common Stock. The Committee believes
that stock options directly motivate an executive to maximize long-term
stockholder value. The options also utilize vesting periods (generally four
years) that encourage key executives to continue in the employ of the Company.
All options granted to executive officers to date have been granted at the fair
market value of the Company's Common Stock on the date of grant. The Committee
considers the grant of each option subjectively, considering factors such as the
individual performance of the executive officer and the past and anticipated
future contribution of the executive officer to the attainment of the Company's
long-term strategic performance goals. Long-term incentives granted in prior
years are also taken into consideration.
The Company established the Purchase Plan both to encourage employees to
continue in the employ of the Company and to motivate employees through
ownership interest in the Company. Under the Purchase Plan, employees may
purchase Common Stock through payroll deductions in semi-annual offerings at a
price equal to the lower of 85% of the closing price on the applicable offering
commencement date or 85% of the closing price on the applicable offering
termination date. The Company has reserved 220,000 shares of Common Stock for
issuance to employees.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of the Chief Executive Officer is reviewed annually on the
same basis as discussed above for all executive officers. In 1999, James E.
Rurka's base salary was increased from $290,000 to $300,000, an increase of
3.5%. Mr. Rurka received a $78,750 bonus in 2000 relative to 1999 performance
and a $25,000 bonus in 1999 relative to 1998 performance. As with other
executive officers, Mr. Rurka's total compensation was based on the Company's
accomplishments and the Chief Executive Officer's contribution thereto.
17
<PAGE>
SECTION 162(M)
The Board has considered the potential future effects of Section 162(m) of
the Internal Revenue Code on the compensation paid to the Company's executive
officers. Section 162(m) disallows a tax deduction for any publicly held
corporation for individual compensation exceeding $1.0 million in any taxable
year for any of the executive officers named in the Proxy Statement, unless
compensation is performance-based. The Company has adopted a policy that, where
reasonably practicable, the Company will seek to qualify the variable
compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m).
In approving the amount and form of compensation for the Company's executive
officers, the Committee will continue to consider all elements of the cost to
the Company of providing such compensation, including the potential impact of
Section 162(m).
Respectfully submitted by:
COMPENSATION COMMITTEE
John P. Walker, Chairman
James E. Rurka
David Schnell, M.D.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of the Series A Preferred Stock Purchase Agreement
between the Company and EpiGenix, Inc., a Delaware corporation, now named Iconix
Pharmaceuticals, Inc., (hereinafter referred to as "Iconix") dated January 14,
1998, the Core Technology Development and License Agreement between the Company
and Iconix dated January 14, 1998 (the "Core Technology Agreement") and the
Antiviral and Surrogate Genetics Research and Collaboration Agreement between
the Company and Iconix dated January 14, 1998 (the "Collaboration Agreement"),
the Company has purchased 8,750,000 shares of Series A Preferred Stock of Iconix
in exchange for the assignment and license of certain technology from the
Company to Iconix pursuant to the terms of the Core Technology Agreement. The
shares of Series A Preferred Stock are deemed to have a value of $0.75 per share
based upon the $0.75 price per share paid by the investors purchasing Series B
Preferred Stock of Iconix (which is substantially similar in rights,
preferences, and privileges to the Series A Preferred Stock) as part of the same
transaction.
Under the terms of the Core Technology Agreement, the Company agreed to
transfer or license certain technology to Iconix and to jointly develop certain
technologies for a specified period of time. Under the terms of the
Collaboration Agreement, the parties have agreed to collaborate to discover and
develop viral therapeutics, as well as to potentially utilize the technologies
which Iconix will develop for antibacterial and antifungal applications.
Dr. Keith Bostian, formerly Chief Operating Officer of the Company, has
become the President and Chief Executive Officer of Iconix. Dr. Bostian
continues to serve as a member of the Company's Board of Directors. He also
served as a consultant to the Company for a two-year period ending January 13,
2000.
The Company believes that the transactions set forth above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors and will
continue to be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
18
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the Compensation Committee consisted of James E. Rurka, David
Schnell, M.D. and John P. Walker. No interlocking relationship exists between
any member of the Company's Board of Directors or Compensation Committee and any
member of the Board of Directors or Compensation Committee of any other Company.
Except for Mr. Rurka, no member of the Compensation Committee, as constituted
during 1999, was a former or current officer or employee of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, 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 Form 5 with the SEC. Such officers, directors
and 10% stockholders are also required by SEC rules to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 31, 1999, all Section 16(a) filing
requirements applicable to its officers, directors and 10% stockholders were
complied with.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding.
19
<PAGE>
CORPORATE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
return on the Company's Common Stock from the effective date of the Company's
initial public offering on May 14, 1996 through December 31, 1999 for the
Company, the Nasdaq National Market Index and the Nasdaq Pharmaceutical Index.
The Nasdaq Pharmaceutical Index represents all companies trading on the Nasdaq
National Market under the Standard Industrial Code for pharmaceutical companies,
including biotechnology companies. The graph is presented pursuant to SEC rules.
The Company believes that while total stockholder return can be an important
indicator of corporate performance, the stock prices of companies like Microcide
are subject to a number of market-related factors other than company
performance, such as competitive announcements, mergers and acquisitions in the
industry, the general state of the economy and the prices of biopharmaceutical
stocks.
CUMULATIVE TOTAL RETURN*
AMONG MICROCIDE PHARMACEUTICALS, INC., THE NASDAQ STOCK MARKET
INDEX AND THE NASDAQ PHARMACEUTICAL INDEX
<TABLE>
<CAPTION>
STOCK MARKET
--------------------------------
MEASUREMENT PERIOD MICROCIDE NASDAQ
(FISCAL YEAR COVERED) PHARMACEUTICALS, INC. NASDAQ PHARMACEUTICAL
- ----------------------------------------------------- --------------------- -------- --------------
<S> <C> <C> <C>
May 14, 1996 100 100 100
December 31, 1996 71 105 90
December 31, 1997 63 128 93
December 31, 1998 28 180 119
December 31, 1999 63 326 221
</TABLE>
- ------------------------
* ASSUMES $100 INVESTED ON MAY 14, 1996. ASSUMES DIVIDENDS REINVESTED.
FISCAL YEARS ENDING DECEMBER 31.
20
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Mountain View, California
Dated: May 15, 2000
21
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MICROCIDE PHARMACEUTICALS, INC.
2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 2000
The undersigned stockholder of MICROCIDE PHARMACEUTICALS, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated May 15, 2000 and hereby appoints
James E. Rurka and Michael J. O'Donnell, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 2000 Annual Meeting
of Stockholders of MICROCIDE PHARMACEUTICALS, INC. to be held on June 15, 2000
at 9:00 a.m. local time, at the Company's offices located at 850 Maude Avenue,
Mountain View, California, 94043, and at any adjournment thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
/ / FOR all nominees listed below
(except as indicated)
/ / WITHHOLD for all nominees listed below
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Daniel L. Kisner, M.D., David Schnell, M.D. and Mark B. Skaletsky
2. PROPOSAL TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UNDER THE 1993 AMENDED INCENTIVE STOCK PLAN FROM 2,580,000 TO
3,030,000 SHARES:
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL PERIOD ENDING DECEMBER 31, 2000:
/ / FOR / / AGAINST / / ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment thereof.
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS NAMED ABOVE, FOR
THE INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
UNDER THE 1993 AMENDED INCENTIVE STOCK PLAN AND FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF.
Dated: ________________, 2000 ____________________________________
Signature
____________________________________
Signature
(This Proxy should be marked, dated and signed by the stockholder(s) exactly
as his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.)
